1. The U.S. political system is deeply dysfunctional, especially during this crisis. Power-hunger reigns in the name of Social Desirability Bias. Fear of punishment aside, I don’t care what authorities say. They should heed my words, not the other way around.
2. Few private individuals are using quantitative risk analysis to guide their personal behavior. Fear of personally antagonizing such people aside, I don’t care what they say either.
3. I am extremely interested in listening to the rare individuals who do use quantitative risk analysis to guide personal behavior. Keep up the good work, life-coach quants – with a special shout-out to Rob Wiblin.
4. After listening, though, I shall keep my own counsel. As long as I maintain my normal intellectual hygiene, my betting record shows that my own counsel is highly reliable.
5. What does my own counsel say? While I wish better information were available, I now know enough to justify my return to 90%-normal life. The rest of my immediate family agrees. What does this entail? Above all, I am now happy to socialize in-person with friends. I am happy to let my children play with other kids. I am also willing to not only eat take-out food, but dine in restaurants. I am pleased to accommodate nervous friends by socializing outdoors and otherwise putting them at ease. Yet personally, I am at ease either way.
6. I will still take precautions comparable to wearing a seat belt. I will wear a mask and gloves to shop in high-traffic places, such as grocery stores. I will continue to keep my distance from nervous and/or high-risk strangers. Capla-Con 2020 will be delayed until winter at the earliest. Alas.
7. Tyler suggests that people like me “are worse at intertemporal substitution than I had thought.” In particular:
It either will continue at that pace or it won’t. Let’s say that pace continues (unlikely in my view, but this is simply a scenario, at least until the second wave). That is an ongoing risk higher than other causes of death, unless you are young. You don’t have to be 77 for it to be your major risk worry.
Death from coronavirus is plausibly my single-highest risk worry. But it is still only a tiny share of my total risk, and the cost of strict risk reduction is high for me. Avoiding everyone except my immediate family makes my every day much worse. And intertemporal substitution is barely helpful. Doubling my level of socializing in 2022 to compensate for severe isolation in 2020 won’t make me feel better.
Alternatively, let’s say the pace of those deaths will fall soon, and furthermore let’s say it will fall by a lot. The near future will be a lot safer! Which is all the more reason to play it very safe right now, because your per week risk currently is fairly high (in many not all parts of America). Stay at home and wear a mask when you do go out. If need be, make up for that behavior in the near future by indulging in excess.
Suppose Tyler found out that an accident-free car were coming in 2022. Would he “intertemporally substitute” by ceasing driving until then? I doubt it. In any case, what I really expect is at least six more months of moderately elevated disease risk. My risk is far from awful now – my best guess is that I’m choosing a 1-in-12,000 marginal increase in the risk of death from coronavirus. But this risk won’t fall below 1-in-50,000 during the next six months, and moderate second waves are likely. Bottom line: The risk is mild enough for me to comfortably face, and too durable for me to comfortably avoid.
8. The risk analysis is radically different for people with underlying health conditions. Many of them are my friends. To such friends: I fully support your decision to avoid me, but I am happy to flexibly accommodate you if you too detest the isolation. I also urge you to take advantage of any opportunities you have to reduce your personal risk. But it’s not my place to nag you to your face.
9. What about high-risk strangers? I’m happy to take reasonable measures to reduce their risk. If you’re wearing a mask, I treat that as a request for extra distance, and I honor it. But I’m not going to isolate myself out of fear of infecting high-risk people who won’t isolate themselves.
10. Most smart people aren’t doing what I’m doing. Shouldn’t I be worried? Only slightly. Even smart people are prone to herding and hysteria. I’ve now spent three months listening to smart defenders of the conventional view. Their herding and hysteria are hard to miss. Granted, non-smart contrarians sound even worse. But smart contrarians make the most sense of all.
11. Even if I’m right, wouldn’t it be more prudent me to act on my beliefs without publicizing them? That’s probably what Dale Carnegie would advise, but if Dale were here, I’d tell him, “Candor on touchy topics is my calling and my business. It’s worked well for me so far, and I shall stay the course.”
12. I’ve long believed a strong version of (a) buy-and-hold is the best investment strategy, and (b) financial market performance is only vaguely related to objective economic conditions. Conditions in March were so bleak that I set aside both of these beliefs and moved from 100% stocks to 90% bonds. As a result of my excessive open-mindedness, my family has lost an enormous amount of money. The situation is so weird that I’m going to wait until January to return to my normal investment strategy. After that, I will never again deviate from buy-and-hold. Never!
READER COMMENTS
Olivia Lorraine
Jun 2 2020 at 12:36am
Very interesting thoughts–thank you for sharing them. One of your motivators is a dislike for the solitude and the need or strong desire for in-person socializing. I’m a little weird, I realize, but for me the solitude is quite comfortable–and I enjoy communicating virtually with people–so my drivers are different. I will continue to isolate not because of herding or hysteria, but actually because I’ve found that I enjoy this way of life. I am discovering that I had a hidden hermit in me that now enjoys having permission to live in this way.
blink
Jun 2 2020 at 1:35am
Kudos, Bryan, for sharing this wisdom and taking these actions!
I largely share your views here, but will not be joining you in moving to 90% activity; for me, the long term cost of being called a pariah is just too high and too frightening. (It reminds me of Robin’s recent poll which could be read as suggesting most people would prefer covid infection to a sexual harassment charge.)
I am very sorry to hear about poor financial bet (15), though, especially given your betting record on other questions (4).
Mark Z
Jun 2 2020 at 1:42am
I agree that Tyler’s reasoning on inter-temporal substitution doesn’t work very well here. Can I just go to twice as many parties per week for three months after this is all over? I don’t think that’s how demand for social activities works. Granted, to some limited extent, people can compensate with excessive socialization later, but socialization is also partly like food: you can’t not eat for a month then eat twice as much the next month. I’d guess that for most people, if they could only socialize every other month, no amount of socializing during the ‘social months’ would be enough to compensate for having to socially isolate for the other months. The loss from social isolation mostly cannot be ‘recouped’ with future socializing. Add that many people are going to have to work a lot more in the future to make up for lost wages, or are going to have friends working more and unable to socialize as much. And that we’re not just going to get an ‘all clear’ in three weeks, or even three months (unless the US magically gets really good at testing, tracing, etc.) that would even allow for such an intertemporal substitution.
ee
Jun 2 2020 at 8:16am
I didn’t know what this post was about until point 5. Bringing up demagogues and mentioning “this crisis” – I assumed you were talking about police violence protests.
Thomas Hutcheson
Jun 2 2020 at 8:26am
All of this looks fundamentally mis-conceived. Ones actions, and for anyone who wants his opinions to influence the opinions of others, ought to be thinking in terms of the externalities of the pandemic. Caplan ought to wear a mask not to protect himself (it does little good) but to protect other people from him if he were a an asymptomatic spreader and secondarily to set a good example for others and as a signal to people he encounters that he is taking their welfare into considerations. Ditto socializing.
As for “power hungry” politicians, it is vacuous explanation for policy decisions. Of course firms want to make profits and politicians want to be or get re-elected. That does not explain why the one will increase a price any more than why the other will raise a tariff (or impose a state-wide lock down rather than some other set of measures).
Robert Gledhill
Jun 2 2020 at 10:35am
Hi Bryan,
The way you write you are focusing a lot on the risk of death. I think it is plausible (although by no means certain) that a larger QALY risk is that the disease reduces quality of life in non-fatal ways. I have nothing more than anecdotes on this, and acknowledge that there’s a lot of uncertainty.
I also think I may be biased as I enjoy my quarantined life – for me video calls with friends are almost as good as meeting in person. When the costs are so small, it’s easy to pay them for an uncertain benefit.
Kind regards,
Rob
Alan Goldhammer
Jun 2 2020 at 10:41am
#12 – I run a small home investment office and manage a couple of trusts. I did nothing in March. The trusts are even for the year and my main fund is down about 3% which is an acceptable return unless your name is Bill Ackman. Too bad Brian did not keep a level head. Bonds are not necessarily a safe investment right now although the Fed intervention in the purchase of large ETFs is keeping some of the issues afloat.
robc
Jun 2 2020 at 1:11pm
I started a new job in 2019 and my 401k at it began in January. It is the platonic example of dollar cost averaging. My first few biweekly purchases were high, then the drop and the partial comeback. But despite the only partial comeback, I am up significantly in that account.
My IRA where I rolled over the 401ks from my previous jobs…not so much.
Denver
Jun 2 2020 at 1:26pm
Sorry to hear about your investments. And I pretty much agree with most of what you’re doing.
However, I think it’s a bit disingenuous to equate wearing masks and gloves to wearing a seatbelt.
When you wear a seatbelt, you drastically improve your chances of living through a low-probability encounter. Wearing a mask and gloves does nothing to increase your chances at surviving a low probability encounter, merely, at best, it just the further lowers the probability of said encounter.
Furthermore, since it’s debatable wether or not it’s good for society as a whole, both for wearing a seatbelt (decrease in auto deaths, increase in total accidents and pedestrian deaths) and wearing masks/gloves (decrease in transmission rate, decrease in herd immunity), I suspect that even these cautions are more based in hyperbole and herd behavior than rational thought.
derek
Jun 2 2020 at 1:43pm
Whoa, dude, I think you need to chalk that March stocks/bonds trade as a massive loss in your bet tracker. This should seriously lower your assessment of your… assessments!
Alan Goldhammer
Jun 2 2020 at 6:38pm
Yes, the streak can be considered to be over.
derek
Jun 3 2020 at 8:55am
It’s not just over. The likely size of the March loss probably completely overwrites all of the $1,000 here, $1,000 there bets with individuals and potentially puts Bryan into the territory of “makes bad bets overall”. If we think that betting on things reflects having a stake in opinions, then surely it is correct to gauge one’s accuracy by weighting the bet outcomes by dollars gained/lost.
Philo
Jun 2 2020 at 2:15pm
“The situation is so weird that I’m going to wait until January to return to my normal investment strategy. After that, I will never again deviate from buy-and-hold. Never!”
This passage has shaken my (hitherto firm) belief in your rationality. The situation is always “weird,” or, at least, unique and unprecedented. You had no good reason to deviate from buy-and-hold in March (I assume that you should be taking the risk implicit in equity investment), and you have no good reason now. What do you imagine is so special about January, 2021?
PaulS
Jun 2 2020 at 2:45pm
Interesting thoughts, particularly in with respect to indefinite social isolation not being cost-free.
I’ve said some of this, and probably triggered some folks, but here’s my analysis:
Gross death risk, from ridiculously apocalyptic Ferguson (before he was disgraced for breaking the cruel, harsh rules he talked the UK into), in the absence of severe coercive “action”: 0.6%. (That gave the 2 million of 330 million in the USA.)
Expected years of life lost: circa 10 or 11 on average. I.e. much of the risk comes from being seriously ill (not necessarily in hospital) beforehand.
Expected quantity of life lost: around 10 days. 0.6% of 10 or 11 years is 22 days or so, then adjust for overly apocalyptic thesis. Maybe as little as 5 days. And this expectation is largely independent of age over maybe 25 – higher risk with age (or likely, conditions that accumulate with age) but less to lose. (If young folks were essentially immune, it would be absurd to label them as “heroes” for working as grocery clerks, but the Left always gets to have everything both ways.)
Expected quantity of life saved by “flattening the curve”: essentially zero, beyond the point where the “curve is flattened” enough for hospitals not to be badly overloaded, which was a truly serious issue almost nowhere except for spots in Lombardy. According to a recent Lancet article, essentially no one will escape being exposed to an infectious dose no matter what, as the virus was allowed to become endemic and will fester and spread indefinitely even if slowly. (Note for example, Mayor DeBlasio’s initial hesitant reaction before he was bludgeoned into getting religion. In a sense he was correct, since the shifts toward isolation and remote working, and the narratives that shifting was perfectly OK, completely undermined any rationale for his city even to exist. Why bear such huge expenses if working over a computer from anywhere that’s reasonably priced is just hunky-dory?)
QALYs lost per year of virtual house arrest: YMMV, but maybe 0.25 to 0.35. QALY time lost so far, fast approaching 3 months: around 25 or 30 days, give or take.
QALYs lost due to circa 10 years of severe economic depression: who knows, but many months to several years worth.
QALYs lost due to indefinitely continuing partial house arrest – since it’s not even particularly certain that there will *ever* be a vaccine: a few months to who-knows-how-many years.
Triggering of Puritanical people due to above analysis using QALYs: priceless, especially when conversing with wannabee socialists, or those who want government takeover of health care. Those folks ought to be in favor of using QALYs to help determine what’s worthwhile, as the NHS and other publicly run health services typically do.
Degree of overpayment already forcibly rendered or committed-to, for the circa 10 days of life expectancy: too vast to contemplate. But then the only important things are: virtue-signaling and Trump-hatred on the Left, mixed in with lust for power over others (for example I have no reason whatever to care whether somebody remote from others in the out-of-doors is wearing a mask – except if I’m a yenta or a Nurse Ratched lusting for power.) By comparison to power and signaling, neither physical nor mental matter even one whit.
So there it is.
Brian
Jun 2 2020 at 3:00pm
“Conditions in March were so bleak that I set aside both of these beliefs and moved from 100% stocks to 90% bonds. As a result of my excessive open-mindedness, my family has lost an enormous amount of money.”
Bryan,
So you have a great track record on winning a multitude of bets in which you wager a small amount of money, but lose completely when making a bet on your family’s life savings? This does not inspire confidence in your judgment. I can’t imagine any approximation of rational thinking that would have justified pulling out entirely from the stock market on account of COVID-19.
Mr. Econotarian
Jun 2 2020 at 3:52pm
Wouldn’t you feel better if you went out and TRIED to get infected and get sick and recover? Then it would be over, and you wouldn’t have to intertemporally substitute, you could feel relieved and no longer at risk at all.
I have to admit having thoughts like that myself very early in the pandemic, then when hospitals started to fill up I thought “OK, windows of opportunity for easy survival may be over”, but now that the death rate is down to “just 1000 per day” and I’m unlikely to be treated in a tent in Central Park, maybe it is time to consider it again.
Mr. Econotarian
Jun 2 2020 at 3:56pm
“Conditions in March were so bleak that I set aside both of these beliefs and moved from 100% stocks to 90% bonds. As a result of my excessive open-mindedness, my family has lost an enormous amount of money.”
Depends when you got out. If you got out in February, you are up. If you got out after March 6, you are down.
However it isn’t the obvious pandemic business loss I’m concerned about, it is the unknown shadow baking financial problem that it will expose that I am concerned about it. Student loans, car loans, I dunno. As people stop paying their rents what happens to multi-family dwelling mortgages? Something is likely to snap.
Biopolitical
Jun 2 2020 at 4:51pm
Your decision to wait until January to switch from bonds to your normal strategy is incompatible with your point 3, and even 4. It’s one of the two most uncaplanian things I have ever heard from you. The other one is your switching from equity to bonds in the first place. There is a difference, though. Switching to bonds belongs to the past, while waiting till January is ongoing!
Rob Wiblin
Jun 2 2020 at 5:23pm
Very kind Bryan! We actually did a whole lot of calculations to try to figure out how to behave individually back in early March.
A serious challenge we ran into with the analysis is that there’s strange non-linear effects due to the virus’ exponential spread, plus the great majority of the impact of our actions was going to be on others.
For me as a healthy youngish person it’s not crazy, from a selfish point of view, to just continue socialising as you describe.
But if everyone acts that way, or even if everyone under 50 does so, probably more than 50% of people will have been infected by the time we can reasonably hope to have an effective treatment, tonnes of testing, or a vaccine.
And probably in the ballpark of 0.5% of the population will die as a result.
Looking at it from that point of view rather than from an individual-decision point of view, I’m not sure if that’s a good way to go (literally I just don’t know, it seems like a tough call).
Oh, and because in the early stage the prevalence doubles in less than a week, it’s also easy to get the fraction of the population that is infectious very wrong. When we did the calculations I think in retrospect our estimate was off by a factor of 3, which would have shifted my personal behaviour materially.
Jose Pablo
Jun 12 2020 at 8:56am
Rob, you are making some asumptions I don´t follow
You say: “the great majority of the impact of our actions was going to be on others”. That is simply not true:
Imagine I am a healthy individual the action of assesing my risk and deciding getting out or not has a potential negative impact just in myself.
This is a risk I am best placed as an individual to assess and to decide my behaviour base on my own risk analysis.
Very likely I would avoid getting out when cases are “doubling in less than a week”, your reasoning assumes that everybody is stupid and will keep getting out (in abscence of imposed restrictions) even at that point (very unlikely). On the other hand the more vulnerable people would have stayed at home during this period in any case. So your predictions of the negative effects of “individual decissions” are based on the assumption that most individuals are “dumb”. Although there is a quite solid empirical base for that assumption I very much doubt this being the case: “dumbness prevalence” is probably the same (if not higher) for politicians, health organizations officials and other people forcing a quarantine on us.
If I am having symptoms of the illness is clear I should quarantine myself and here is where the externalities concentrated. But these are, very likely, less than 1% of the cases.
I am only a risk to others in the case I am infectious and no having symptoms (first stages of the illness or being an asymptomatic patients). But there is also a risk to the “global wellbeing” (psychological and economical) in avoiding any social contact.
It is far from clear which behaviour cause the worst “externalities”: getting out being in the 0.5% of the populaton which is infectious and asymptomatic or staying at home being in the 99% of the population which is healthy.
The idea of externalities should not be used with such a very low bar to prove them or the space for individual decission will become non existent since everything we do (or we don´t do) has an impact on others.
nobody.really
Jun 3 2020 at 8:42am
You don’t have in-laws?
nomadscientist
Jun 5 2020 at 11:26pm
“12. I’ve long believed a strong version of (a) buy-and-hold is the best investment strategy, and (b) financial market performance is only vaguely related to objective economic conditions. Conditions in March were so bleak that I set aside both of these beliefs and moved from 100% stocks to 90% bonds. As a result of my excessive open-mindedness, my family has lost an enormous amount of money. The situation is so weird that I’m going to wait until January to return to my normal investment strategy. After that, I will never again deviate from buy-and-hold. Never!”
An interesting and honest account.
Do you intend to reduce your long term stock allocation on psychological grounds, or do you have total confidence that you will never again sell in an apparent market collapse?
Did you sell in 2007/8?
bill
Jun 11 2020 at 12:26pm
#12. Very honest reporting. I’m impressed. You might consider going back in now, but gradually. Say 10% of your funds every month for 10 months.
Regarding your estimates of the risks from CV-19, I would add in a lot more value for unknowns. It’s not just a binary live or die. Some really weird and dire results accompany this for a portion of those that get it, and the healing from those may not be so straightforward.
Jose Pablo
Jun 11 2020 at 7:04pm
What a wonderful piece Bryan!, one of the smartest I have read regarding this epidemic,
Governments should be focused on providing accurate and useful information for the individuals to make their own informed decissions.
Instead they are lying, mixing figures up an transforming information into propaganda aimed at showing how well they are managing the situation. I could not care less about whether they are genious or idiots (probably the later taking into account how they get elected). And I am sure they manage the situation whith the main objetive of winning the next elections. Dificult to see how (or why) this can help me.
Governments have failed misserably providing useful information: having precise information of the prevalence of the virus in your area will be extremely valuable to you and could have been achived thru not very expensive random testing. Instead they focused on grand-scheme-top-down solutions like testing everybody every week which has not been achieved (and never could have been).
Of course “externalities” will be mentioned as the usual excuse for forcing people to behave the way “central minds” want they to behave. Not clear to me the “externality” mantra applies here since I have all the right incentives to engage in a behaviour that maximize my utility while leaving other people the possibility of maximizing their’s intact.
Thanks again Bryan
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