The latest coronavirus surge is upon us and it's looking more like a tsunami. With public health at risk and the economy hobbling along, we're going to be facing some painful decisions — again. Should governments shut down bars and restaurants? Should schools send kids home to learn remotely? Will some parts of the country have to, as Dr. Anthony Fauci has suggested, hold off on Thanksgiving?
Our track record with these decisions is not great so far. The states hardest hit by the first wave made these decisions too slowly. The ones hit hardest by the second wave repeated the mistake, acting only after they had run out of other options, as local hospitals became overwhelmed and daily deaths set records.
As temperatures plummet and infections rise, will we learn from the past and get it right this time around? Behavioral economics says probably not.
When it comes to painful choices, we act like losing gamblers refusing to quit, hoping for that one big hand that will get us even. We hope that luck will break our way and we can avoid ever having to make the tough choices.
Kahneman and Tversky offered people the following type of proposition:
Would you rather accept a sure loss of $750 or an 80% chance of losing $1,000 (and a 20% chance of no loss)?
If you pick the option that gives you a 20% chance to avoid the loss (that comes with an 80% chance of losing $1,000) it will cost you $800 on average, more than the sure loss of $750. But even though it's economically worse, most people will take the gamble, hoping luck will break their way and they'll hit the 20% chance of having to pay nothing at all. Rationally, they should pay the $750, but that comes with the pain of a sure loss, so they're willing to pay the cost of taking the worse bet to avoid that pain.
By delaying painful decisions during the first and second waves, many American politicians have taken a lot of similar gambles that luck will somehow break our way — that the virus will disappear with the warm weather or a miracle cure will appear or an effective and safe vaccine will come ahead of schedule. And just as Kahneman and Tversky found, as a nation we have had to pay the economic price of taking that gamble.
If we want the economy to recover more quickly, we have to get the virus under control. We know what to do. Limit the size of gatherings. Keep indoor dining and bars closed. Maybe even delay, cancel or reimagine Thanksgiving. Yes, all these things are painful, but these are decisions we're likely to wish we had made earlier. The longer the United States delays these decisions, the more Americans will pay for the gamble.