What Behavioural Economics must learn from the coronavirus crisis
By Steffen Huck
Social science offers many strategies for dealing with the coronavirus pandemic. After all, the success of the virus is not based solely on its biological properties but also on human behaviour. The virus will not harm us as long as we keep a safe distance to our fellow human beings. At the same time, the effects of distance keeping are strictly social, they impact on our psychological well-being and sense of financial security.
With the first anniversary of the appearance of coronavirus drawing near, it is worth noting that the social sciences too may learn from the present crisis. This is especially so for the field of behavioural economics, which has over the past decades successfully attuned economic theory to the psychological reality of our being, including our weaknesses.
If we examine some of the core tenets of behavioural economics in the light of the coronavirus pandemic, we are confronted with diverging claims to relevance in times of crisis, including two success stories and one epic failure.
The current crisis exposes the limits of human rationality, thus far elucidated by behavioral economics, in two key areas.
We find multiplication more difficult to undertake than addition. Something that elementary school teachers will regularly experience seems to be the case for professional grown-ups. Even trained journalists reporting on the pandemic for several months have not quite grasped exponential growth - despite the many attempts to explain it, including German Chancellor Angela Merkel's effort to define the so-called R-value – essentially a rate of multiplication. Exponential growth continues to be confused with large numerical growth. This became apparent in late summer, when numbers were increasing slowly yet multiplicatively and the press warned about exponential growth being imminent, despite the fact that constant duplication intervals, the very characteristic of exponentiality, were long foreseeable. When daily infections stood at roughly 4,000, national news outlet Spiegel online cautioned; while also stating that the critical peaks reached in spring, over 6,000, remained “a far cry away". Less than a week later, infections rose to over 8,000.
We tend to think short-term and gravitate toward forgetfulness. Want your sweetie now or wait a quarter of an hour to get an extra one? Walter Mischel's Marshmallow experiment from the early seventies illustrated the consequences of not thinking ahead. We are now living through an extreme version of this, only coupled with an exponential growth process. By the time the number of weekly infections per 100,000 inhabitants in Berlin had reached 40, no less than 95 % of the city’s testing capacity had already been exhausted. Why didn't the authorities spend the summer expanding testing capacities, despite every virologist’s insistence of an impending "second wave"? It’s simply because they had forgotten about the viral threat as well as all those horrible scenes from Bergamo and thought: what you can put off till tomorrow, well, you needn't do today. The lack of testing capacities and tracking personnel are now painfully evident with authorities able to backtrack less than 10 % of new infections in Berlin.
On the other hand, a third tenet of behavioural economics is left depleted. For several decades, economists were scolded for their narrow-minded view of individual self-interest. At one point, some of us actually started to proclaim the end of selfish "homo oeconomicus", replacing it by "homo socialis" – a good and sociable human being with nothing but "social" preferences. And since good men love to hear good things about themselves, these apostles of a new economy were effectively treated like saviours.
Empirical proof of the revolution was found, for example, in data retrieved from the so-called dictator game. Here, an experimenter hands ten euros to a subject, who is then asked to divide the money between himself and another person at will. And lo and behold, almost nobody keeps all of it, while many give half. Quod erat demonstrandum.
The notion of an ultimately good-hearted human being inspired many. However, as my one-time colleague, the great Ken Binmore has observed, studying dictator games does not at all require a formal experiment to take place since all of us are constantly playing dictator games - after all, we are always free to offer a stranger some of our small change. Compared to the data points retrieved from the lab, where subjects were being closely tracked, there are quadrillions of real-life observations where hardly anyone gives anything, ever. According to the recurring motif in Binmore's work, people are only good if it is in their long-term interest, i.e. if it results from their self-interest (altruism towards one’s own children and other close relatives may be an exception).
The pandemic is now providing us with fresh data from real life, and it looks like a sad triumph for the "dismal science" of economics. This summer’s main driver of new infections was a generation of 15- to 30-year-olds for whom partying was evidently more important than the health of their fellow beings. But really, why should they care? They tend to remain unaffected by Covid-19 and might even benefit from an early inheritance.
Not to criticize party culture: Why anybody would sensibly act against their own best interest is wholly obscure with regard to our rootedness in the animal kingdom. Evolution has been there to teach us, painfully, that if we stand by others for no self-reliant reason, we will become extinct.
If there is failure in the current crisis, it is certainly not that of young, fit people seeking a little fun. The real failure lies in naive appeals to altruism. Our reliance on the power of a “social” preference in managing this crisis is proving fatal. Behavioural economics must explore the limits of its altruistic paradigm while shedding light on the relationship between laboratory kindness and everyday egoism. The notion of a deeply rooted do-gooderism may indeed flatter our hearts, but it must cloud our understanding of human action in these difficult times.