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The social and economic disruption caused by the Corona virus affects us all, and in very different ways. It affects our health situation, our social life and our work. The crisis situation also leads to exceptional financial measures, both in the Netherlands and in Europe. What do the economists at Utrecht ľ�ϸ���Ӱ�� observe at this exceptional moment in time?

Episode 2: Stephanie Rosenkranz, professor in Multidisciplinary microeconomics, pleads for random testing, nationally and internationally, because it will give policy makers a true insight in the replication number for COVID-19. The use of these scientific facts as the basis for (economic) policy plus the self-surveillance by self-motivated and well-informed citizens, may be powerful and effective in fighting the pandemic, and reduce the size of the recession that is likely to follow.

‘Scientists as well as policymakers are struggling to get a grip on the worst health crisis of our times. However, it seems that by now finally most of them agree that a policy suppressing what in epidemiology is called the “replication number” makes a lot of sense,’ says Stephanie Rosenkranz. 

‘In Europe social distancing of the entire population, closure of schools and universities, and stopping mass gatherings is mandated in most countries. These measures aim to smoothen the curve, reduce the number of critical patients and thus the excess demand for health care. These measures will save lives. 

At the same time, slowing down the peak of infections comes with enormous consequences for the economy. For how long these measures have to stay in place in order to flatten the epidemic curve is unclear. But it is clear that the longer these measures are in place, the longer also the time that the economy is not at full capacity, and the larger is the size of the recession that is likely to follow.

We tend to be overconfident and suffer from 'hindsight bias'; we favour information that confirms our previously existing beliefs. If the current situation has taught us anything, then it is the fact that this is true for everybody.

We are bad at updating our beliefs and processing new information 

Predicting economic consequences of these measures is extremely difficult. Not only because there is little precedent, but mainly because the economy is a complex system and as such inherently difficult to predict. The economy is a network in which everyone is connected to each other. Rational as well as irrational decisions can cause chain reactions and feedback loops. In the current situation the amount of uncertainty among all participants, firms, workers, and consumers, but also banks, investors and policymakers is significantly increased. 

From a large body of research in behavioural economics, we know that, on average, humans are not very skilled decision-makers in situations of high uncertainty and ambiguity, mostly trying to avoid them altogether if possible. We are bad at updating our beliefs and processing new information. We tend to be overconfident and suffer from hindsight bias, and we favour information that confirms our previously existing beliefs. If the current situation has taught us anything then it is the fact that this is true for everybody, including policymakers, some of which are still claiming that they can handle this macroeconomic challenge at a national level. 

Random testing will give an idea of the true replication number

Until now in most countries people are tested when they either work in a health-care setting in which a confirmed case has received care, or if they are “suspected cases”. Some countries also test close contacts of the “cases”, so for example people in the same household, health care setting, or school. Based on these tests one can estimate the number of people who are infected conditional upon having had contact with a person who has the virus, or conditional upon working in an environment that might be contaminated. This number is obviously not a good predictor for the chance of a random individual in the population to be infected. 

Randomly testing a larger group of people independently of whether they have symptoms or not is important because it allows to get this base rate of infection at a specific stage of the epidemic. Preferably this is done repeatedly within one country, as well as in various countries where the outbreak started at different moments in time. Gathering these data gives a rough idea of the true replication number. 

Recording other information about the socioeconomic background of every tested person, as well as demographic and locational characteristics at the household level will allow to understand who is more likely to be an asymptomatic carrier, and who are the most vulnerable groups in the society. Measures of social distancing and surveillance could then be targeted to more effectively protect the vulnerable, while others could go back to work.

A powerful form of behavioural control in social communities does not need legal agreements and formal sanctions

Self-surveillance by self-motivated and well-informed citizens may be powerful and effective 

Surveillance is critical in two senses. It is critical for the proposed policy to be effective. It seems obvious that in normal times at least in the western world the response to a government monitoring its citizens’ contacts, and punish those who break the rules of social distancing would be highly controversial. With the threat of a global health and economic crisis such policies seem perfectly permissible to many. In fact modern technology and ubiquitous sensors make it possible to monitor everyone all the time. China already introduced certain mobile apps that use biometric information to warn citizens about their proximity to infected patients. Such surveillance should be considered with a critical mind, because -  as recently pointed out in the New York Times – there are many reasons to believe that it may permanently reduce the autonomy of citizens.

Self-surveillance by self-motivated and well-informed citizens may, however, be as powerful and effective. For this to be the case, scientific facts are needed as much as trust in science and public authorities.  One step towards trust can be achieved when public authorities help gather the scientific facts and allow teams of scientists from various disciplines to use all their expertise to analyse the data from different countries. Random testing of a sufficiently large number of people can be such a step and will allow researchers from diverse disciplines to analyze and draw conclusions with confidence. 

In the meantime using and trusting all available expertise is as important. The  suggest that if everyone would wear “do-it-yourself” face masks the curve would smoothen significantly even without a lock down. If policymakers embrace such facts, as happened in Czech Republic (see #masks4all movement), and promote certain behaviour as a social norm, mechanisms of social enforcement would motivate people to do what is considered ‘right’ and avoid what seems ‘wrong’. This powerful form of behavioural control in social communities does not need legal agreements and formal sanctions.

Policymakers should set aside election campaigns and national thinking

The recently launched random testing study of the blood bank Sanquin or the Infection Radar of the RIVM in the Netherlands are steps into the right direction. But for taming a pandemic a global approach will be essential. Policymakers should set aside election campaigns and national thinking and use scientific facts wisely. In the short run a policy that reduces uncertainty and increases trust is necessary. The announced cash grants to firms and possibly tax rebates and a temporary universal income for households can prevent negative feedback loops. However, these policies can only be reinforced when policymakers communicate hard facts to their citizens to empower them to make good decisions. We need everyone to act as wisely as possible to stop an impending economic collapse.’