Incentives for Overestimating Risk

In the United States, and really across the globe, things are becoming more expensive. The price of food, gasoline, cars, and other goods have gone up quite a bit in the last year as the global economy adjusts to the new realities of the post-COVID world, as economies continue to respond to economic stimulus events, and as uncertainty around whether the pandemic truly is in our rear-view mirror continue to hang over our global consciousnesses. During this time of high inflation, many tv pundits, politicians, and experts are forecasting doom and gloom for national and global economies. Forecasting bad news seems to be the norm right now.
Steven Pinker explored the incentives for overestimating risk and forecasting bad news in his 2011 book The Better Angels of Our Nature. Pinker specifically looked at violence and war in his book and found that there are incentives for people to predict something negative, but not necessarily incentives for people to predict something positive. Pinker writes:
“Like television weather forecasters, the pundits, politicians, and terrorism specialists have every incentive to emphasize the worst-case scenario. It is undoubtedly wise to scare governments into taking extra measures to lock down weapons and fissile material and to monitor and infiltrate groups that might be tempted to acquire them. Overestimating the risk, then, is safer than underestimating it – though only up to a point. (emphasis mine)
We might be safer if everyone predicts a worst case scenario. If the people with the largest platforms focus on the dangerous potential for a terrorist attack, the public will demand action to reduce the risk. If there is a great focus on the need for improved safety equipment in hospitals responding to a new strain of COVID, then public officials are more likely to act. If there is overwhelming concern about inflation and economic collapse, the government will hopefully take better actions to balance the economy. Predicting that everything will work out and hum along on its own could be more dangerous than predicting the worst outcomes. Predicting doom and gloom not only gets attention, it can drive early and decisive decision making.
But as Pinker notes, it is safer to overestimate risk only to a point. Pinker cites the costs of the war in Iraq in search of weapons of mass destruction that did not exist as an example of dangerous worst case forecasting. Overreacting to COVID in China through excessive lockdowns and insufficient vaccination efforts may be contributing to higher global prices for goods at the moment. And predicting an economic collapse could spook markets and scare consumers, leading to worse economic outcomes than might otherwise occur. There are incentives to predicting the worst, but also costs if our predictions go too far.
I think our jobs as individuals is to be aware of the worst case scenarios, but not to become too trapped by such predictions. We need to remember that making worst case scenario predictions will provide feedback into what is already a noisy system. It is likely that forecasting the worst and spurring action by individuals will avert the worst. This doesn’t mean we can sit back and let others handle everything, but it should encourage us to think deeply about worse cases, our actions, and how panicked we should be.

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