The modern world has never seen a global public health crisis like the one that continues to unfold and claim lives, leaving virtually no community untouched. On March 31, SFI hosted a panel discussion that explored how an understanding of the interactions between epidemiology and economics might help predict the optimal way forward.
On April 15, SFI hosted a follow-up flash discussion that focused on human behavior, incentives, and beliefs. Cris Moore, Michael Lachmann, and David Krakauer organized the workshop, and panelists came from fields including social science, psychology, and economics. The overarching message was that the financial and social fallout of the pandemic, while difficult to predict, will largely depend on actions at individual, community, and institutional levels. By using tools including better science communication and strategic economic incentives, institutions can incentivize individuals to work together to protect each other and recover.
The conversation opened with SFI Professor and social psychologist Mirta Galesic noting that food banks are overtaxed, unemployment is high, and surveys suggest people are less happy than they’ve been in a decade. “How much more can the current system take?” she asked. Will society return to normal, or be transformed? Such uncertainty offers a powerful opportunity to improve communication of science, said Galesic. We can build trust in research even as trust in government authorities seems to be waning, she said, if we are willing to go where people are and address them on their own terms.
Psychologist Mahzarin Banaji, following Galesic, observed that the COVID-19 outbreak is unusual, attention-grabbing, and diabolical—a trifecta of conditions that psychologists have learned makes people particularly vulnerable to cognitive biases. Those biases can lead to an underestimation of personal risk. She emphasized that the pandemic is global, and we are all only as safe as the most vulnerable members of society.
Many individuals don’t take the situation seriously and aren’t coordinating with each other, said economist Matt Jackson. That’s a big problem because the pandemic represents the interaction of multiple complex systems, and taking a patchwork, region-by-region “whack-a-mole” approach to controlling successive waves of infection and economic fallout won’t be effective. “If you spot termites in your bedroom, you don’t just close down the bedroom and try to get rid of the termites there,” he said. “You fumigate the whole house.” It will be increasingly important to convince people that individual behaviors affect larger networks.
Economist (and 2007 Nobelist) Eric Maskin similarly noted that the outbreak will disrupt production and financial cycles, and “we shouldn’t just be thinking about reacting to one [system] and not the others.” Controlling the damage from COVID-19 will require coordination between governments. He also argued for new economic mechanisms that fairly allocate the cost of manufacturing items such as ventilators, for which standard market interactions will not suffice.
The presentations concluded with economist John Geanakoplos, who predicted the health crisis will trigger an economic one, on par with the Great Depression in terms of unemployment and the financial impact. How long that crisis lasts, he said, will depend in large part on the response of the Federal Reserve system. “An active fed will be crucial to getting us out of this crisis in a couple of years, and not five years,” he said.
During times of economic uncertainty, he noted, it is not enough to lower interest rates, since private-sector lenders are unwilling to make loans they think won’t be paid back. But he does see signs of hope, through new federal loan programs. “The Fed is already acting more boldly now than it did” during the 2008 financial crisis, he said.
The panelists agreed that there’s no clear signal from experts or models on what comes next. “The economic forecasts are all over the map, from what I’ve seen,” said Matt Jackson. However, Eric Maskin did point out one aspect that no one debates. “We can all agree that the economics look bad.”
Read more about the event, "Incentives, Levers, Beliefs"