The recent economic shutdown caused by the Covid-19 outbreak has created a totally new and unprecedented business risk: over-pessimism.
In contrast, managerial and consumer research has most often focused on issues associated with over-confidence. For example, most drivers rate themselves above average, and the vast majority of entrepreneurs and managers believe they will be successful, but such optimism cannot logically be true since approximately 50% of drivers, entrepreneurs, and new products are below average or failures. Although such over-confidence can problematic at the individual level, it can be useful at the macro-level, because without it most people would probably never dare drive a car, and many new businesses and products would never get started or funded.
Predictions that millions would die from the spread of the coronavirus have seemingly overwhelmed our typical over-confidence this year, and led to unprecedented government restrictions on economic activity and personal freedoms. These shut-down justifying predictions are based on pandemic models such as those by epidemiologist and professor of mathematical biology Neil Ferguson at Imperial College London, which initially predicted up to 2.2 million deaths in the United States and 550,000 in the UK. Fortunately, such estimates have proven to be greatly exaggerated, as it currently appears that Covid-19’s death rates, including its overwhelmingly elderly and sick victim profiles, are within the range typically expected during a bad flu season (Morefield 2020).
No health crisis or pandemic over the past 100 years has resulted in so many economic and civic activity restrictions, or quarantines of so many healthy people as we have seen during this year’s Covid-19 pandemic, and the question remains why governments reacted so forcefully in 2020 to predictions coming from modelers who have been so consistently and pessimistically wrong.
I have not been able to find a single instance of a widely reported or followed pandemic model that was not wildly off in a pessimistic direction over the past 50 years. For example, the same Professor Ferguson also predicted 200 million deaths from the 1997 avian (bird) flu (actual deaths: 440), and up to 50,000 deaths from the Mad Cow Disease in the late 1990s (actual deaths: about 200), but Ferguson is not alone in his consistent pessimism as it is a widespread phenomenon among pandemic modelers (Fumento 2020).
This consistent and exaggerated bias towards pessimism is not only associated with health pandemics, however, but also models of global sustainability and climate change that have frequently been used by environmentalists and politicians to promote and implement industry regulation and the curtailment of citizen freedoms. Such pessimism is reflected by predictions of mass starvation, resource depletion, and ever-growing pollution and poverty from the first Earth Day in 1970 (Perry 2018). Yet 50 years later, the biggest public health problem is obesity rather than starvation, oil prices briefly dipped into negative values due to over-supply, air and water are cleaner in developed nations than at any time since the Industrial Revolution, and global poverty is at an all-time low.
These examples suggest widespread bias on the part of modelers, because if prediction errors were random it would be expected that approximately half the models would predict fewer than actual bad outcomes and half would predict more.
After so many failed predictions of doom, why is over-pessimism growing in influence? One possible cause is that virtually none of the “experts” behind the failed models has suffered any reputational damage despite being consistently and pessimistically wrong in predicting health and environmental outcomes. Unlike people who fail in their business endeavors and consequently suffer damage to their reputation, wealth and employment, many failed modelers continue to be sought by the media and politicians during times of potential crisis, as demonstrated by Professor Ferguson’s influence in justifying the Covid-19 shutdowns.
Another possible cause for the persistence of over-pessimism is that sceptics are routinely vilified by the media and political opponents. For example, despite relatively good health outcomes, Sweden and my home state of South Dakota have been routinely criticized for being more sceptical about Covid-19 predictions and implementing less drastic mitigation policies (Henley 2020; Schow 2020).
In any case, the pessimism justified shutdowns have had massive ramifications for millions of otherwise healthy people who have lost businesses, jobs, income and education. Months of pessimistic predictions of widespread illness and death are also likely to have lingering effects even after businesses are allowed to reopen, because it may take some time before citizens feel safe in returning to crowded restaurants, stores or airliners, or confident enough to take on debt or make a major purchase.
At this point, we can only hope that Covid-19 might prove to be a learning exercise for the media and politicians, which will make them more skeptical towards crisis modelers in the future, while also considering more fully the costs of shutdowns. We should also hope that consumer and managerial over-optimism will quickly return to spark economic activity and prosperity.
References:
Fumento, Michael (2020), “After Repeated Failures, It’s Time to Permanently Dump Epidemic Models,” Issues and Insights, (April 18), available here.
Henley, Jon (2020), “Swedish PM warned over ‘Russian roulette-style’ Covid-19 strategy,” The Guardian, (23 March), available here.
Morefield, Scott (2020), “’The Data Is In – Stop the Panic and End the Total Isolation’: Fmr. Stanford Chief of Neuroradiology Discusses Viral Column,” Daily Caller, (April 24), available here.
Perry, Mark J. (2018), “18 Spectacularly Wrong Predictions Made Around the Time of the First Earth Day in 1970: Expect More this Year,” Foundation for Economic Education, (April 22), available here.
Schow, Asche (2020), “Washington Post ‘News’ Article Trashes South Dakota Governor For Not Shutting Down State Over Coronavirus,” Daily Wire, (April 14), available here.
Published 14. May 2020