Embrace your ignorance

(featured image: Robert Couse-Baker CC BY)

It is OK not to know stuff for certain, especially when things are uncertain

Once upon a time, there was a cat. It was a hypothetical cat, owned and imagined by Erwin Schrödinger, a 20th century quantum physicist. Dr Schrödinger had placed the cat in a box, together with a bottle containing cyanide, a hammer connected to a Geiger counter (an instrument to measure radioactivity), and some radioactive material. He had then sealed the box and waited for an hour to pass. The Geiger counter in the box could detect the radioactive material, but there was so little of it that the chance of this happening over the course of one hour was exactly 50/50. If it did, it would release the hammer, which would then shatter the flask with the poison, leading to the death of the cat. Now, without opening the box, could we say whether the cat was alive or dead?

No. As Schrödinger’s famous (and somewhat lugubrious) thought experiment illustrates (see this video for enlightenment), until the box is opened, and we know whether or not the poison was released, the cat is in a kind of indeterminate state – both alive and dead, or indeed neither. Such indeterminacy is not unusual in the field of quantum physics, and quantum physicists happily deal with it. However, in our ordinary world, with objects that are much larger than the tiny particles they work with, we also have to deal with situations where we don’t know whether something is true or false, or even with things that are neither true nor false – situations where we are ignorant. And that is something we may find very hard to handle.

A profound aversion to uncertainty

We appear to have a profound aversion to uncertainty, which seems to be further accentuated by the tense COVID-19 crisis. The vast majority of what we hear and read from the media, from political leaders (and, on social media, from numerous self-proclaimed pundits with little or no relevant competence) exhibits unshakeable certainty. It’s as if it’s only the experts who acknowledge they know very little for certain, and whose statements exhibit nuance.

But we need certainty, and there are plenty of people who are ready to oblige. You may have seen the YouTube video (at the time of writing, it has been viewed 24 million times) in which a family doctor gives advice on how to handle the groceries we buy. One of his tips is to wash fresh produce with soap for at least 20 seconds. This is a bad idea. (Apparently the good doctor has now admitted as much – but in the meantime millions of people may have taken him at his ‘expert’ word). And yet, it seemed to make perfect sense: if washing our hands with soap for at least 20 seconds is recommended, the same must obviously be true for what we put in our mouth – no?

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We are all epidemiologists (source: IPSOS)

 

It’s not just other people’s reassurance and certainty we crave and lap up. We are invited to express strong opinions on complex issues, asserting our own certainty. A recent poll by the market research company IPSOS asked respondents in a variety of countries to what extent they agreed or disagreed with the statement “Restrictions on travel and self-isolation won’t stop the spread of COVID-19 virus”. (Attentive readers will notice that the virus is mislabelled – its name is Sars-Cov-2; COVID-19 is the name of the disease it causes). For most people, including your correspondent, the only sincere answer must be Don’t know. I, and most of my fellow citizens, do not remotely know what the various contagion mechanisms are, what proportion of transmission happens through each of them, how these might be affected by such measures at an individual level and at a community level, to what extent the measures are and will be adopted, when people start and stop being contagious, and so on.  Yet it seems that doesn’t stop a huge majority answer as if they do (the highest proportion of Don’t knows is in Germany, just 11%).

We humans are a sophisticated bunch, equipped with a cognitive capacity that outstrips anything in the known universe. Yet when it comes to it, we cannot handle uncertainty. We demand clarity of the black and white kind.

Such binary thinking feeds us distorted images of the world, however. People are either with us, or against us. There is no room in this frame of mind for the equivalent of Schrödinger’s cat: no room for neither agree nor disagree, perhaps because they have not fully studied our position, or they can see both arguments for and against it.

Uncomfortable, but OK

And sometimes we simply do not know. That should be fine. In a paper entitled I don’t know,  Matthew Backus and Andrew Little, two academics from respectively Columbia and Berkeley universities, conclude that it is in the interest of both good and bad experts to express uncertainty if the effects of certain policies in in political decision-making are impossible to know. I’ll stick my neck out, and add that this would be good advice for non-experts as well.

Not knowing is uncomfortable, though, especially when we feel we need to make a choice. We don’t want to be seen to act on a whim, so the very act of acting must have been inspired by some certainty – even if it is imaginary certainty. Perhaps we rationalize our choices under uncertainty by projecting a rationale backwards? If we have no facts, we can always rely on our priors – like the doctor who advised us to wash our apples and tomatoes with soap.

To some extent, we see this around the controversial topic of the wearing of face masks. Imagine two people, Pat and Chris. Pat believes that face masks, by virtue of being a physical barrier, will be effective at stopping at least some of the contagion we risk when briefly breaking the lockdown/shelter in place to get provisions. Chris believes face masks are crucial for medical personnel who are in close proximity with very sick patients, but that the aerosols that transmit the virus from infected individuals are not going to be stopped by inexpertly fitted masks worn by ordinary people, and that such masks will engender a false sense of security.

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Why stop at a face mask? (image: leo2014 via Pixabay)

Pat and Chris are both right. They will each find evidence to support their view, and this evidence will strengthen their conviction. When they see evidence for the opposing view, they will be suspicious of the source and will discount it. Pat and Chris will assert the correctness of their view with increasing vigour because, like the rest of us, they don’t just exhibit a strong tendency to confirm their priors (you will have recognized the confirmation bias), but also a tendency to persuade others and recruit them for their cause. This predictably gives rise to a self-reinforcing process, by which they will hear echoes of their own advocacy and see them as yet more evidence that they, and they alone are right.

Yet Pat and Chris are simultaneously right – just like Schrödinger’s cat was simultaneously alive and death. The mistake they make is to believe that their rightness, their truth, is absolute – while it is partial and conditional. Even an improvised, ill-fitting face mask will catch some droplets when the wearer coughs, sneezes or speaks, and prevent droplets projected by others from reaching their own mouth or nose. But what proportion of the particles that really matter – droplets or aerosols – are really caught? Neither Pat nor Chris really knows. They don’t know whether wearing a face mask is like a motorcyclist wearing a helmet or a woolly hat. They also don’t know how people will behave when they are wearing face masks, however inadequate. Will they continue to maintain the physical distancing measures and simply treat the masks as extra protection, or will they – because they feel better protected – go out more, and be less conscientious in keeping 2 metres away from others?

If we are interested in the truth, we should be willing to abandon our priors, time and time again. Once we adopt a belief, it will take over and seek protection from us. We will seek to confirm our belief and seek to persuade others, rather than to verify and adjust.

Abandoning our priors means proclaiming our ignorance, however. That is not easy for us, uncertainty-averse creatures that we are. But admitting we don’t really know enables us to accept there are multiple truths, and stops us from caring which particular truth is the ‘real’ one.

That is why it is good to embrace our ignorance. It is by doing so that we can overcome it.

 

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Gambling with the undead

(featured image credit: Dov Harrington CC BY)

In these surreal times, it is good to acknowledge the gambles we and others make

I am a gambler. The UK is in a near-lockdown state, and yesterday I needed to go to the shops for some provisions. It was quiet, and it was easy to stay more than 2 metres from anyone else. But later on, as I had got home, washed my hands and put my bread, produce, cereal and a bottle of wine (and even some kitchen roll!) away, I realized that anyone could have touched these items before me. Including people who might have coughed or sneezed in their hand just before. To be absolutely safe, I should have thoroughly wiped every single item in my bag.

And I never did – so I gambled. I bet that the chance my purchases were contaminated, and I would somehow pick up that contamination and infect myself was negligible. I could have spent 10 minutes wiping everything, but I bet that it would be fine to ignore that risk, and in return saved myself some time.

Our lives at stake

So, in a very real sense, I gambled with my life. And I suspect you have done the same, many times. Even in normal times, we make many choices where we could opt for an alternative that keeps us (or others) safer or healthier. But we make a trade-off and choose the riskier path, because it saves us some time, money or effort, or because it makes our life at that moment a bit more enjoyable.

Most of the time, we don’t even realize we are doing this, and most of the time, the risks involved are quite small. And in these surreal lockdown times, where the focus of our attention is how many people succumbed to the novel coronavirus in the last 24 hours, too, there is a lot of gambling going on.

party time

0.2% chance of dying – decent odds for the last party in months? (image: Mauricio Mascaro/Pexels)

Young people have been gambling with their life. The case fatality rate (CFR) of COVID-19 is still not quite settled, but we know that it is a lot higher than for ordinary influenza, and currently  estimated at 2.3% of people infected (although it varies a lot between countries). What we also know is that it varies a lot by age range. Chinese data suggest that, for teens, the CFR is just under 0.2%. This sounds very small – and that is of course if you contract the virus. From the Spring Break to the Lockdown and (Fuck) Corona parties in many European countries, young people gambled that 0.2% was negligible, and certainly nothing to worry about.

Arguably, they had a point. Earlier this week, Belgian virologist Marc Van Ranst, commenting on a sudden surge in hospital admissions in the preceding 24 hours, warned that young people were not immune: “a number of the youngsters now in intensive care attended Lockdown parties the evening the pubs were ordered to close” (which was on 13 March in Belgium). But even though COVID-19 is about 4 times as deadly for a 20-year old as the background risk of dying (0.05% in the UK), it still means that only about 2 infected people in a thousand will die. That may well look like a risk worth taking for the last party in quite possibly many months.

Other people’s lives at stake

However, they didn’t just gamble with their own life. They also gambled with the lives of the people they might infect. Someone with the virus will typically transmit the virus to 2.5-3 others; these in turn will do the same and so on. After ten iterations, the number of people thus infected is well above 10,000 (possibly even in excess of 50,000), so with a CFR of 2.3%, that means an infected person could be implicated in the deaths of many hundreds of people.

This sounds terrible: a likelihood of dying of 0.2% may seem a reasonable price to pay for a good party, but the death of hundreds of people? But it is of course not so clear cut. It is impossible to trace one person’s infection back to one specific individual, many iterations ago, just like it is impossible to trace the deaths of one person as a result of air pollution in a city to an individual driver.

Our gambles can have direct consequences for ourselves and for others. If we drive like a lunatic, we can harm ourselves and other people, and if we do, the responsibility we carry is clear. But when it comes to contagious diseases, epidemics and pandemics, that responsibility is so diffuse that it is much harder to appreciate. We are all a tiny little bit responsible, to the extent that we feel we can consider our own behaviour as insignificant.

Betting one’s life for someone else

There is another kind of gambling going on, though. While most of us are cooped up in our homes for most of the day, keeping our contact with potentially contagious others to a strict minimum, some people are knowingly betting their life in order to serve others.

medic

She may not much look like a gambler, but she is betting her life (image: Shane Ede CC BY)

The people in the shops, who make sure there is food and drink on our table, detergent in our washing machine, and loo roll in our bathrooms, these great people are in direct contact with hundreds of people, every day, many of whom might be about to start showing symptoms, and unknowingly pass on the dreaded virus. And perhaps even more so, there are the hundreds of thousands of medical personnel and carers who, day after day, treat and look after COVID-19 patients whose life is in grave danger.

I don’t think I took much of a risk when, last night at 8pm, I stepped out of my front door, and joined millions of other people in the UK applauding for them. Clap for our carers was kicked off by London-based Dutch yoga teacher Annelies Pas to honour care and healthcare workers, replicating similar initiatives in other countries.

Of course, it will have had no discernible direct effect on stemming the spread of the novel coronavirus, that wretched piece of DNA, neither alive nor dead, that is doing so much damage. But as a symbol of gratitude and respect for these courageous people, who day in day out gamble with the undead, literally putting their own life at stake in order to save that of others, the applause and the beating of kitchen utensils on pots and pans last night was a moving and uplifting event.

We need that kind of thing, too, in these weird times.

Stay safe, stay healthy. Look after yourself and after each other.

 

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Like shifting sands

(featured image credit: Weekend wayfarers CC BY)

Our preferences are neither fixed, nor absolute – and that is a good thing, in times of crisis

Some people prefer fried tomatoes to steamed broccoli, while for others it is the opposite. (I cannot imagine there are many such people, but as my grandson is living proof, I must concede there is clear evidence). Some like to go to the opera, others to football matches – at least when coronavirus measures are not in force. Some like fast cars with a prestigious badge; others consider their vehicle as a mere an instrument for transporting people and stuff from A to B. You get the picture: we all have different preferences.

Preferences are an important aspect of decision-making, and of great interest to (behavioural) economists. It is helpful to know what people want (or want to avoid), and how badly they want this. One way of measuring the strength of such preferences is to establish how much someone is willing to pay (WTP) to acquire (or avoid) something, and how much they are willing to accept (WTA) to give something up (or to be willing to live with it). This is often enlightening, but we must not forget that the amounts in question are no more than a proxy for an internal preference. Some preferences do not easily let themselves be captured in WTP or WTA. If you were asked what would be worst, losing a finger, or losing a leg, you might say that you’d rather lose a finger, even though you would probably not be able to express in money what it would be worth to you to avoid either of them being removed.

The same, but different

Not all preferences can be expressed through sums of money, but that does not make them any less real. Imagine your most favourite artist ever will give a concert in a nearby city and a friend manages to get tickets, inviting you along as a birthday treat. You are elated at the prospect, and get more excited as the day of the gig approaches. Then, three days before the performance, you fall seriously ill, and you are unable to attend the concert. That would really suck. Picture a Scale of Awfulness, with 0 being meh and 10 being a fate worse than death, and put a pretend marker on it, corresponding to how bad you would feel.

cancelled

Still better than a broken femur (photo: bixentro CC BY)

Right. Now imagine a different scenario: instead of you getting sick, it is the artist who is ill and needs to cancel the concert. Again, pretty bad. But would you rate it as extreme on the Awfulness scale as being alone in missing out? Probably not. Let’s do one more, a really hypothetical one, this time. Imagine there is a pandemic of a new virus, and in order to stem its spread, many countries have banned sports meetings, theatre performances and music festivals, and closed shops, bars and restaurants. You will miss out on the concert you had been so looking forward to. Where would your pretend marker be on the Awfulness scale, expressing how bad you feel about this?

My guess is that this would feel bad as well, but not quite as bad as the two other scenarios. It chimes with my experience too. Last October, I registered for a very interesting conference in Toronto this coming July, and was looking forward to meeting up in person with many distant friends, people that I have known, in some cases for many years, but only through digital interactions. COVID-19 now means it is not very likely this will happen.

As the virus crisis unfolded, at first, I was hopeful that the whole thing would blow over well before the summer, but I am a lot less certain now. Yet strangely, the knowledge that we are all in the same boat – not just the other attendees to that particular conference, but everyone on the planet is seeing plans of all kinds obliterated – makes me come to terms with it much more easily. If I had to put markers on the Awfulness scale, missing this opportunity because of the pandemic would score something like 3.5, while being stuck at home as a result of a fractured femur, while almost literally everyone else is enjoying their trip would suck big time, and score perhaps an 8.5.

This is remarkable, since the material effect for me is exactly the same. Situation one: I attend the conference and see my friends; situation two: I don’t. What other people do or don’t do is not material – or should not be material – to me. And yet, it clearly is.

Two sides to the position

Our wellbeing is definitely influenced by our perception of others. We care about our relative position. A study by two economists, Sara Solnick and David Hemenway, asked people about their preferences relating to a range of facets including their income, their own IQ and that of their children, and feedback at work. For example, one set of questions asked what they preferred: that their child has an IQ of 110 while that of their friends’ children is 90, or that their child has an IQ of 130 while other children have an IQ of 150. They called the first choice the ‘positional’ one (it places a respondent at a higher position in comparison with others), and the second one the ‘absolute’ one (it provides more absolute benefit to the respondent).

More than half the respondents would prefer a child with an IQ of 110, if she is more intelligent than other kids, to a child with an IQ of 130 if her peers were smarter still. Likewise, more than 50% said they’d prefer infrequent praise from their boss as long as they got more than their colleagues, and even that they’d rather earn $50,000 if their peers earned $25,000, than earn $100,000 if their peers took home $200,000.

evilqueen

Fair, fairer, fairest of them all … (source fair use)

This suggests that we tend to care rather a lot about our relative position compared to our peers. Arguably, this has detrimental welfare consequences. Recall the fairy tale of Snow White. The queen is perfectly happy with her beauty, until she hears from the mirror that she is not the prettiest in the land. In the real world, it can breed resentment, trouble personal relationships, and lead to the kind of positional arms race that economist Robert Frank has been writing about for many years. We’re not happy until we have kept up with the Joneses, but as soon as we get there, they jump ahead again (I wrote about it here).

On the one hand, this preoccupation with relative positions seems to be a destructive force in society. But, as it behoves even an accidental (behavioural) economist, I can see the other hand too. In times of crisis, whether it is a flooded village, wildfires, or indeed a pandemic, the same tendency that makes us envious if others have more than we do, can forge a strong sense of togetherness. The people who were unfortunate enough to be on the Diamond Princess, the cruise ship that gained global notoriety because it was one of the first locations outside China where people infected with the coronavirus were identified, were, literally, in the same boat.

And so are we all. That sense of togetherness makes our preferences shift like sand dunes in the wind, when we compare our own fate with that of others. In situations like this, that is probably a good thing.

Stay safe. Stay healthy. Look after yourself and after each other.

 

Posted in Behavioural economics, Economics, Emotions, Psychology, Society | Tagged | Leave a comment

Our (corona)viral pitfalls

(featured image credit: CDC)

The stakes in the global battle against the coronavirus are high, and our ability to make sense of often conflicting messages is under strain – there are many pitfalls. How should we evaluate what we read?

A new virus is messing with our health and with our society, and we are all ignorant. There is still a hell of a lot we do not know about this novel coronavirus – it’s the kind of novelty we can all do without. That is a thoroughly unpleasant feeling: we prefer by far simple, unambiguous messages.

That’s something social media are good at: conveying and delivering simple, unambiguous messages. The trouble is, it is not always easy to tell how accurate and helpful they really are. Many of them contain data and graphs, giving them an air of credibility that they do not necessarily deserve. Many of them come from, or are repeated by, people we have come across before, people who we believe to have a good reputation, and who would not knowingly spread false information or inappropriate speculation.

But they are human, and therefore subject to cognitive distortions that interfere with human reasoning, especially in these highly emotional times. And so are we: there might be a difference between what we think we read, and what was written.

What are the potential pitfalls, and how can we know what to believe – or not?

Look for the other side

Unless you have been completely off social media this last week, you will have seen numerous messages and posts, challenging and criticizing the government strategies and policies that are being deployed in the various European countries, now designated the epicentre of the coronavirus pandemic. The unorthodox approach in the UK has been a particular target of condemnation. That is now somewhat out of date, as the UK is now also adopting more conventional measures.

At times like this, adopting the economic way of thinking – recognizing that every choice has costs and benefits or upsides and downsides – is a sensible thing to do. But many of those criticisms were characterized by one-sidedness: the authors focused on the unwanted consequences of the authorities’ taking (or failing to take) an action, but had little or no attention either for the counterfactual (what would be the undesired outcomes of taking the opposite action?), or for the challenges in pursuing an alternative option. One theme that came up frequently in my feed was the failure of the authorities to order schools to close (or to do so sufficiently quickly). Surely schools are a major vehicle for transmission of the virus, so cutting off that path of contagion must be a sensible measure that must be taken without delay, that was the logic.

empty classroom

Empty classrooms, empty workplaces? (photo: Karen Apricot CC BY)

But doing so has direct and indirect consequences that matter too. If schools cannot look after children, parents are obliged to stay at home from work to do so, or leave them with their grandparents. The latter would clearly be a bad idea, but the former would mean many organizations could not operate normally, and at some point, even might not be able to function at all. This would be detrimental in healthcare, where many staff rely on childcare. A very recent paper by Jude Bayham and Eli Fenichel, economists at Colorado State and Yale University respectively, considers this trade-off and concludes, “it is unclear if the potential contagion prevention from school closures justifies the potential loss of healthcare workers from the standpoint of reducing cumulative mortality”. And even if a childcare solution was possible that allowed keeping essential activities running, while everything else was eventually shut down, such a situation could not be maintained indefinitely without severe economic consequences. (This is not to say that the schools should never be closed, but it is not as simple as just locking the doors.)

So when people make categorical statements about what should or should not be done and at what time, let us bear in mind that armchair decision-makers can afford not to care about whatever they want. Real-life decision makers cannot do that. They must weigh up a complex set of consequences across longer time periods. Critics are not always aware (or choose to ignore) this complexity.

Don’t be picky

Another phenomenon we may come across is the Dunning-Kruger effect: our propensity to overestimate our own cognitive ability. Even very smart people can exhibit this tendency when they stray outside their area of competence. Vaughan Bell, a London-based neuropsychiatrist, psychologist and academic at UCL, captured it thus in this tweet,  “Twitter is awash with people with PhDs, good intentions and out-of-context graphs, suddenly deciding complex issues in viral epidemiology lead to ‘obvious’ solutions.”  Andre Spicer, a professor Organizational Behaviour at Cass Business School remarked: “The amateur expert. Def: A person who reads a few books from the smart thinking section then considers themselves a world authority on almost any topic and is willing to offer sweeping policy prescriptions”. Andrew Little, a political scientist at the University of Berkeley and co-author of a recent paper entitled I don’t know, advises people in this way: “If you are asked to or otherwise tempted to pontificate on a topic where you lack expertise (say, pandemics), please consider consulting this paper first.” Posters may be well-meaning and sincere, but we must be careful with attributing too much confidence to people whose credentials are in other domains.

armchair expert

Even the experts don’t know everything they wish they knew, and every challenge they face has multiple possible responses, both in nature and in timing. Different experts (especially if they are from different disciplines) may have different views on what is the most appropriate strategy. This means anyone with preconceived ideas can easily find some expert who supports their view. And should this expert express a nuanced standpoint, they can still cherry pick those bits from it that serve them best. These tendencies are known as selection bias and confirmation bias. It is worth trying to spot these, not only in the arguments we come across, but also in our own interpretation of what we read. Let us widen our sources and listen to contrary theses – and not pick our experts.

When two trusted experts, having both properly and thoroughly considered the same evidence, come to a different conclusion, perhaps the wisest thing to do is not to side with the nicest one, or to toss a coin. It might be better to repurpose Schrödinger’s cat and maintain the idea that both may be right – time will tell. As Scott Fitzgerald said, the test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.

Some people may be driven by an agenda of partisanship – e.g., pro or anti the government – and support or decry the prevailing strategy accordingly. This does not typically produce robust argumentation, but instead motivated reasoning. If you know in advance what you want the conclusion to be, then you can construct a perfectly reasonable-looking argument that leads straight to it. This does not mean that what the government does is necessarily good (or necessarily bad). It means we had better judge a strategy on its merits, not on whether it is (or is not) pursued by the government.

Motivated reasoning and its close relative motivated beliefs (“people believe what they want to believe”) can also make us downplay the likelihood of that which we don’t want to happen, or see strong support for our preferred approach, where there is in fact none. An example of the former would be to ascribe the dramatic spread of the virus in Italy to peculiarly local circumstances (“and that’s why it won’t happen here”); the latter is what we’d see when someone argues that, because a particular intervention has seemingly been effective somewhere else, it should also be adopted here. Such extrapolation from one context to another is precarious, as is extrapolation from anecdotes. Inevitably, with hundreds of people dying every day, there are harrowing stories from people who lost loved ones, and from front-line medics confronted with heart-wrenching decisions. But managing an epidemic is about thousands and thousands of lives. It cannot be done on the basis of individual cases.

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Timing matters (photo: webandi via Pixabay)

Finally, let’s watch out for groupthink. It is very well possible that the policy decisions the authorities make are influenced by the tendency of advisers to conform, or by an urge to reach a consensus. We ourselves, too, should not just adopt a view because it’s held by a majority in our circle and we do not want to dissent. Let’s look for contradictory evidence and seek nuance, rather than simplicity. We should be willing to dissent – if not with our friends, then at least with our own leanings.

We may not know what others know

Whether we disagree or agree with the actions that are taken by the authorities, we ought to bear in mind a few things. We probably have access to only a fraction of the information they have, and we may be selective in which aspects we consider. What may look insane from where we are sitting may well look utterly balanced from where they are sitting – because they have taken a wider view, need to consider more trade-offs, and have more data than us. Our judgement should not be coloured by what we don’t know.

Also, remember that timing is crucial in epidemics. This virus is going to march on for many months to come. In a game show we would not play all our jokers in the first round, any more than, in a battle, we would fire all our ammunition in the first few minutes. So it is with managing this epidemic: it is as much a question of which measures to take, as when to take them.

And above all, let us remember that we are on uncharted terrain. There is no textbook answer to the question, what now? In such circumstances, we must be circumspect of unfounded opinions and supposed certainties, and be careful what weight we give to what messages, especially if they imply expertise. Liverpool manager Jürgen Klopp demonstrates you can communicate impactfully without suggesting or requiring any particular qualification. He sets a great example, that is worth following.

Stay safe, stay healthy.

 

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Eisenhower and the coronavirus

(featured image: Judith E. Bell CC BY)

In case of urgency, the unimaginable can become the feasible

Say you had two tasks competing for your attention: one is very important, the other one is very urgent. Which one would you do first? Chances are, you’ll pick the urgent one. Not only does this seem self-evident, there is even a reasonable evolutionary explanation for this. The kind of urgent situations our early ancestors were confronted with often required a swift response to ensure survival.

The upside of urgency

Imagine an individual engaged in the important task of gathering wood, suddenly encountering a sabre-tooth tiger with a gastronomic interest in them. If they decided the important activity must take precedence over running away like greased lightning, they would probably not survive long enough ensure their genes were passed on to the next generation. And so, a hierarchical sense of priority of the urgent over the important may well be, to some extent, hardwired.

And this tendency to act on what is urgent can still serve us well. I am sure I am not the only person who, as a student, found it hard to start revising for my next exam if that was not taking place for another week. It’s only when it came well and truly in sight – two days, three days max – that I suddenly found the motivation to open up the folder with my notes. Even in the final year of my master’s degree, I still felt strangely unable to adopt a more planned approach. Urgency was my primary driver.

There is nothing wrong with this if what is important is also urgent, like escaping a hungry predator, or getting a good grade at tomorrow’s exam. But our lives are, in general, more complex than those of our ancestors, or even than those of students. In particular, the things we need to do can be urgent, important, both at the same time, or neither. These can be placed in a 2×2 table, sometimes referred to as an Eisenhower box, after General Dwight Eisenhower, who reportedly once said “I have two kinds of problems, the urgent and the important. The urgent are not important, and the important are never urgent.”

Eisenhower matrix

A bit of order, but aren’t we neglecting the most important?

This captures the essence of where our time management goes wrong. We are inefficient because we are distracted by things that call for our immediate attention but that are of little significance, and we are ineffective because we do not pay attention to things that are important if they are not urgent. You can probably come up with your own examples to populate the figure.

The downside of the dominance of urgency

We may well have an ancestral tendency to favour the immediate and urgent, but we are of course capable of overriding such tendencies, and pay more attention to what is important, urgent or not. How come we then still neglect the non-urgent, but important things?

One reason is that the benefits of what is important often occur in the future: the exam for which we want a good grade is a week from now. The cost, however – the effort or the sacrifice we need to make, is mostly much nearer by: revising precedes the exam. The same applies to matters ranging from watching our weight (it’ll be weeks before we’ve lost that extra pound is distant, but the sacrifice of not having another piece of cake is right now) and doing enough exercise (being able to run 10 km within 1 hour will take months, but we have to make the effort of getting up before the crack of dawn and go for a jog today), to saving for our retirement (we’ll be almost 70 by the time we will enjoy our pension, but we must cut our frivolous but enjoyable expenditure this very moment). That affects how we weigh up the costs and the benefits, and favours the urgent.

And even if future benefits look sizeable, they’re uncertain by virtue of being in the future – certainly (!) more uncertain than the costs we have to bear now. That encourages motivated reasoning: the tendency to justify and rationalize our decisions based on emotions. So we tell ourselves that perhaps making an effort now is not necessary, because who knows what might happen between now and in the distant future, or at least we can delay it until we have more certainty and not waste any effort unnecessarily.

This happens on a larger scale too. We are told about the importance of combating climate change to avoid dramatically rising sea levels and extreme weather with unseen drought and flooding. Pretty important stuff. But the consequences in this narrative, however apocalyptic, are decades into the future, and so are many of the targets for a reduction in carbon emissions. We could, if we wanted to, radically change our behaviour now. But it simply does not feel urgent enough.

A shock to the system

And all of a sudden, it seems we are capable of making radical changes to our behaviour, at short notice. Chad Loder, a tech entrepreneur, remarked on Twitter that quite a few things, which supposedly used to be impractical or even impossible, have somehow “magically become trivially easy” in the COVID-19 world.

Aviation may not be the largest source of atmospheric CO2, but a typical short-haul return flight, for example between London and Rome, produces 0.45 tonnes of CO2 per passenger. That is one-sixth of what the heating of an average British household emits each year. Replacing two short business flights per year with a videoconference would be equivalent to turning the heating off during two of the winter months. Apparently impractical until a few weeks ago. Now we see air traffic over Europe falling by 15% compared to this time last year (in Italy it was down by 50% as of 11th March), as a combination of voluntary (in)action by individuals and government mandates. We can fly less.

air traffic

Flying less is not just possible, it’s happening (source: Eurocontrol)

Mr Loder lists several other interventions that suddenly seem entirely feasible, from conferences that will offer (or be replaced by) video streaming and Skype calls, and widespread working-from-home policies, to a form of universal income for parents who cannot go to work because the schools are shut.

All because we have a challenge that is not just important but also urgent.

‘Free’ is a powerful concept in behavioural economics, but it seems ‘urgent’ is quite capable of eclipsing it. Of course, these behavioural changes are not all voluntary and resulting from individual preferences. We are clearly a long way from the gentle realm of libertarian paternalism. Some of the draconian measures imposed by governments are less a matter of firm guidance than of unconditional enforcement. But there is little resistance. People understand the sacrifices that need to be made to deal with the coronavirus.

Creating our own sense of urgency

When things become urgent, we quickly, and without much deliberation, reconsider actions and interventions that until recently were treated as ‘unthinkable’. Many end up with a ‘how quickly can we do it’ tag.

Yet urgency is to a large extent in the eye of the beholder. When we believe something is urgent, we can swiftly adopt the corresponding mindset. We can then look at the so-called unimaginable behavioural change – whether it’s saving 15% of our income into our retirement fund, cutting down car travel by 50% or whatever it is we really need to start doing now to meet our long-term goal – from the other end. Under what circumstances would we make this change? We can transport ourselves to the future, and contemplate the result of inaction. With that new insight, we transport ourselves back to the present and weigh up what we can do about it now. if we wish, we can bring the future sense of urgency forward to this moment, if we wish.

We can put the important (but not urgent) in the important and urgent box of the Eisenhower matrix, if we want. We really don’t have to wait until circumstances like the COVID-19 virus are forcing our hand.

 

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Behaviour and money

(featured image: jcomp)

Despite all the behavioural economics talk, conventional incentives remain a major influence (albeit not necessarily as intended!) on our behaviour – and vice versa

The state of New York is the latest territory where new measures to reduce single-use packaging have come into force. Plastic bags are banned, and if you want a paper bag, the shops in several cities (including New York City) will charge you 5 cents. It is enough to make the heart of any righteous, libertarian paternalist nudger break out into spontaneous bleeding.

That a ban can be an effective way to influence behaviour is easy to understand –depending on how it is enforced at least. The great economist Gary Becker had a point, when he argued that, often, we are rational criminals at heart:  the conventional economic view of a ban is that it imposes such a high price on violating it, that it outweighs the expected gain of doing so.

Small charge, large effect

But the imposition of a small charge for each bag you need is on a different scale. Imagine yourself in the supermarket a couple of years ago – before any such measures – with, say, £150 ($195, €175) worth of shopping in the trolley, enough to fill six or seven plastic carriers. Then the till operator informs you of a special money-saving promotion: if, next week, you bring your own bags, you’ll get a discount of 5p per bag. You do a quick calculation, and work out that this would reduce your weekly shopping bill by just over 0.2%. Is that really worth the bother?

For many people, probably not. But framed as an additional cost, charging for a bag has been a remarkably successful way to reduce usage. (An alternative approach in Canada backfired, as demand for ‘bags of shame’ at Vancouver’s East West Market went up, rather than down. They are now available as reusable bags.)  In the UK, the 5p charge was introduced in 2015, when the average customer took home 140 bags every year. One year later that had fallen dramatically to about 25 bags, in 2017-2018 it dropped further to 19 bags per customer, and last year it was just 10. This is not just about a material disincentive: it is about having to pay at all. Can you think of a product, any product, that you buy on a weekly basis, and where an increase in the price of just 5p would cause a reduction in demand of 93%?

embarrassing bags

Not as effective as a small charge (but more amusing) (image via Facebook)

This, however, is not the entire story. A study by Rebecca Taylor, an economist at the University of Sydney, found that there is a (hitherto) hidden time cost to such policies: a slowdown at the till of, on average, 3% of the duration of the transaction. This extra time needed at the checkout is due to the time it takes to purchase the bag, and persists for at least two years after the introduction of the policy. But the modest average delay conceals a bigger effect on the customer experience. A transaction where bags are purchased takes 10% more time, and at busy times, everyone in the queue experiences the delay caused by every customer in front of them. The author calculates that this corresponds with an annoying 1.7 minutes extra wait for each customer during peak hours. And that is the kind of thing that chases customers away – further analysis of the data suggests a one-minute increase in the average transaction duration reduces the likelihood that the customer will return to the store in future by 1.2%.

Unexpected behavioural consequences

It seems the disincentive of a charge for disposable carrier bags may well have more than one effect on consumer behaviour. And there is more still – even the overall environmental effect of the reduction in single-use shopping bags may not be as clear-cut as the headline figure suggests. According to another study by the same researcher, shoppers who no longer receive free carrier bags make up for this by buying more plastic garbage bags. This phenomenon, where new regulation of a product leads to a growth in consumption of related unregulated products, is known as “leakage”. The reduction in the use of disposable carrier bags meant a drop in plastic consumption of 40 million pounds (18,000 metric tonnes), but that was partially offset by the rise in garbage bag sales, corresponding to 12 million pounds (5,500 tonnes). (One reason was that people could no longer recycle their shopping bags as bin liners or reuse them in other ways.)

So charges and taxes can change behaviour, but not necessarily exactly as desired. Sometimes the behaviour is entirely unintended, as a recent tweet by Lionel Page, an economist at the University of Technology in Sydney, (and the subsequent thread) illustrated. Authorities in the past (and present) rightly concluded that a property tax is hard to avoid, because it is hard to conceal property. But their approach met with the resourcefulness of the citizens to enjoy the benefits of their property, while legitimately avoiding paying the tax. In the UK (and many other countries), a window tax led to windows (and occasionally even doors) being bricked up – the occupants clearly valued space over daylight. (In 19th century Mexico, the tax only applied to windows, so these were made to start at floor level and were the minimum height to be considered a door.)

Greek unfinished chic

That Greek unfinished chic (image via Twitter)

In the Netherlands, the effect of a property tax  in the 17th century, based on the width of the façade is still very apparent in Amsterdam’s narrow canal houses (the narrowest is just 2m wide), which are very tall and deep (and sometimes even wider at the back than at the front). Something similar was the case in New Orleans. In France, there used to be a tax on floors, but roof storeys were exempt, which led to peculiarly French roof designs. Many countries, including Bolivia, Peru, Greece and Egypt, apparently exempt unfinished dwellings from property tax – you guessed: people make sure their house looks properly unfinished forever more with the odd missing window, wall or roof.

The taxman gets smart

But the tax authorities are not always so easily fooled; au contraire. If you have ever stayed in a hotel, guest house or even rented accommodation, chances are you had to pay a small tourist tax for every night’s stay. However, in Uruguay, in 2018 the government did the opposite, with a sizeable incentive: foreigners visiting the country would receive an automatic refund of part of the 22% VAT that is levied in restaurants and hotels, and on car rental. This may well have changed some people’s behaviour, and enticed them to come to Uruguay rather than go elsewhere.

There was a condition, though: to qualify for the discount, they had to pay the bill with a debit or credit card – no cash. You wonder whether the ultimate motive of the government was solely to attract more foreign visitors… Might there be another category of people whose behaviour would be influenced by this measure?

It can be a challenge for the tax authorities to collect their rightful due from the retail trade in the absence of records of a transaction, as is – unsurprisingly – often the case in cash-based economies. But here, even if they refund a chunk of the VAT (9% of the price before tax, which corresponds with 9/22 or 41% of the VAT due), they still keep nearly 60%, where otherwise it would be zero – and they can levy income tax as well, of course. The scheme must have borne fruit one way or another, as it has been extended (and now appears to refund all of the VAT).

scratch receipt

Maybe, just maybe 50 RMB, or a can of Sprite for sure? (photo via An Engineer in Shenzen)

Such indirect behaviour change – making retailers pay tax by using incentives to influence the behaviour of the customers – can be brought about in even more remarkable ways. In Taiwan, receipts that are also lottery tickets were introduced in 1951, and the system is still running – draws are every other month, with a top prize of around £250,000 (€300,000, $330,000). It has since been copied by several countries, including Portugal and mainland China, where receipts function as scratch cards. Of course, two can play at that game, and traders exploit customers’ risk aversion by offering them immediate rewards for not demanding a receipt, like a discount or a can of pop.

Behavioural economics interventions clearly have the capability to influence our behaviour, not least where taxation (or taxation avoidance) is concerned. But we should not forget that incentives remain a powerful instrument to make us do stuff we otherwise wouldn’t. I occasionally cite economist Steven Landsburg who, in his book The Armchair Economist, says economics can be summarized in four words: “People respond to incentives. The rest is commentary.”

When you think about it – are there many nudges that would be as good in getting you out of bed and off to work as the incentive of your wages?

 

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Absolute and relative

To understand the world, we need to be able and willing to adopt both an absolute and a relative perspective

Did you see that video, a few weeks ago? It was widely shared on social media, and has been viewed nearly 1.5 million times (with other copies many more times) since it was posted. This was not entirely surprising: the surreal sight of an airline passenger repeatedly punching the seat in front of him does indeed have great viral potential.

It concerned, of course, a case of air rage, a conflict over the position of the seat back. The puncher, seated in the last row of the plane (where the seats do not recline), was seemingly most unhappy with the fact that the lady in front of him had reclined her seat. The internet promptly split into those who took her side (“I paid for a seat with a button, so I can bloody well press it”), and those who took his side (“I paid for this seat and I am entitled to a modicum of comfort for my knees”). Despite the tribal division, one thing appeared to unite both camps: the greedy airlines are to blame for this kind of conflict.

Is it greed?

That the airlines have a hand in this is beyond doubt. As Men’s Health reported following an earlier ‘reclining seat wars’ incident, “The average seat pitch—which is the legroom between seats—was 35 [89 cm] inches during the 1970s. But today, it’s just 31 inches. Somewhere over the last four decades, we lost four inches.” This was in 2015, and in the meantime, more shrinkage has taken place (according to SeatGuru, the pitch on the flight in question is 30 inches).

Given the size of a plane, designers have a considerable degree of freedom regarding how many seats they put in it. Further apart means more space per passenger, closer together evidently means less space. But that is not the only thing that matters, of course – there is, as so often, a trade-off being made. Closer together also means more seats, hence more paying passengers, and hence more profit for the airline.

nolegroom

But it’s a lot cheaper! (image via twitter)

See: it is greed! Or is it? More seats closer together also means that the fixed cost of flying the plane from A to B (the lease of the aircraft, the fuel, the crew, maintenance cost and so on) can be spread over more passengers, and that the cost per passenger can come down. Jeremy Horpedahl, an economist at the University of Central Arkansas, worked out that a round trip from New York City to Los Angeles in 1969 cost $304.50, the equivalent of 92 hours’ work at the average hourly wage at the time of $3.31. Nowadays, the same flight costs $500-600, corresponding to 21-25 hours’ work at the average hourly wage of $23.87.

Now it would be ridiculous to argue that this reduction in the cost of air travel by 75% in real terms is entirely the result of squeezing passengers more closely together. But every little helps, in an industry that is not renowned for its huge profitability. According to the International Air Transport Association, net profit per passenger across the industry in 2019 was around $5.70, down from $6.22 in 2018.

So, the accusation of greed seems somewhat overblown. Horpedahl observes, by the way, that the “golden age of flight”, with 35 inch of seat separation and all the other trimmings is still available for $2,000 in business class – which, remarkably, is equivalent to approximately the 92 hours of work you needed to make the trip in economy class in 1969 (it’s even a bit less). But unlike our (grand)parents back then, we now have a choice: pay what they paid for a similar, superior experience, or travel in a more modest and less spacious way, saving three-quarters of the cost. The space available has shrunk over half a century in absolute terms, but so has the cost of flying. Does that make us worse off overall in relative terms? That is not so obvious.

Tricky inflation

Inflation is one of the economics concepts that is widely known outside the professional sphere. We ordinary citizens experience it as rising prices: stuff gets more expensive over time. For example, the list price of a Toyota Corolla in 1980 was $4,348. The latest 2020 model costs $19,600. The difference corresponds with an annual price inflation of about 3.8%. But wait (the economists say), we’re not comparing like with like. A 2020 Toyota Corolla is equipped with more gadgets than even a 1980 Rolls-Royce contained – a backup camera that shows you how to park, a USB port, pedestrian detection, lane departure alert, eight airbags – I could go on. More importantly, not just these, but many more features were absent in its 40-year old sibling, from air conditioning to LED lights and remote locking, and of course a much superior engine, transmission, brakes and so on.

If both models stood side by side, with zero miles on the clock, at the same price of $19,600, hardly anyone would opt for the 1980 version. So, the economists say, to calculate the true inflation, we need to take into account the fact that the new car is so much better than the old one. So let’s say that a hypothetical 2020 model, equipped like the 1980 model would be worth $11,400 in today’s money. That brings down the price inflation rate to 2.4% per annum.

In 1980, someone earning the average hourly wage of $4.82 would have needed to work just over 900 hours to buy themselves a brand new Toyota Corolla. If their income had increased in line with the car price inflation (taking into account the improvements to the car) of 2.4%, their hourly wage would now be $12.64. The price inflation of the car and the wage inflation were the same over the last 40 years, so what could be fairer?

2toyotas

Which is cheaper? That depends (images: RLGNZLZ CCBY and Toyota)

But there is a slight problem. Look at the number of hours someone at the average wage will now need to work to buy a new Toyota Corolla – it’s about 1,550 hours, or about 17 weeks longer than in 1980. Yes, the car is massively better than the one available 40 years ago, but it has become a lot less affordable. If there were a car available at the 1980 specification, it would be more affordable – but then again, if my grandma had wheels, she would be a wagon. (What this simplified example suggests also applies more generally: adjustments are made for quality improvements in manufactured goods, and these percolate into the consumer price index.)

So we observe an intriguing phenomenon: stuff simultaneously gets ‘cheaper’ (in the sense that you get relatively more for the same equivalent amount of money), and ‘more expensive’ (in the sense that it has become less affordable in absolute terms). Are we better off, or worse off compared to 40 years ago? That is not so obvious.

Like the duck-rabbit or the old woman/young woman illusion, what we see depends on what we look at. It is true that the amount of space in airline seats has shrunk, but it is not the whole truth. It is true that you get much more car for your money in 2020 than in 1980, but that too is not the whole truth.

With such ambiguous situations, there is often an absolute perspective and a relative one. To fully understand the reality of what is going on, we had better consider them both – and beware of strong claims based on just one perspective.

 

 

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