Author: Timo Ehrig and Nicolai J. Foss

Risk, Uncertainty, and COVID-19 Strategies

Former World Bank President Jim Yong Kim recently argued that “[n]o one in the field of infectious disease or public health can say they are surprised about a pandemic.” And yet, the COVID-19 outbreak did take most policymakers very much by surprise. From their perspective, the situation was still one characterized by the kind of radical uncertainty highlighted by economists such as Frank Knight and George Shackle: Policymakers were simply unable to assess the possible consequences of action and inaction, and this made informed cost-benefit analyses of alternative (probabilistically assessed) outcomes impossible. One thing was, however, clear: The consequences of a runaway pandemic could be disastrous. In such a situation, the precautionary principle tends to apply. As a prominent member of the Danish parliament told us in mid-March: “This is a natural disaster in slow motion. We basically know nothing. The only rational thing to do is to shut down entirely.” That was six weeks ago. At the time of writing, we are already in a very different situation. Now that many more data points …