Category Archives: Human Behavior

Human Behavior

Can Stress Tests Be Effective Crisis-fighting Tools for Banks? – Knowledge@Wharton

Stress tests in the wake of the 2008 financial crisis helped restore public confidence in the banking system by showing that banks had enough loss-absorbing capacity to weather an even more serious economic decline, noted Wharton finance professor Richard Herring in an interview with Knowledge@Wharton.

Since that time, stress tests have become a regular feature of regulatory oversight of the banking system to help officials assess the resilience of the financial system and guide capital planning by banks. The stress tests should be strengthened to capture the second-round effects of shocks, address a wider range of risks, and incorporate feedback effects within the banking system and between the real economy and banks, Herring said. He also called for the extension of stress tests to a wider range of institutions such as some shadow banks, the harmonization of stress tests globally, the improvement of data and market intelligence to monitor emerging risk, and robust safeguards to ensure that scenarios are not manipulated to suit political objectives. Stress testing may, in fact, be one of the key measures that has prevented the economic damage from the pandemic from being compounded by a banking crisis, he added.

These concerns are the focus of a December 2019 paper titled Objectives and Challenges for Stress Testing, which Herring co-authored with Til Schuermann, a partner and co-head of the risk and public policy practice in the Americas at Oliver Wyman, a consulting firm. It discusses a range of challenges to improving the effectiveness of stress tests, such as incorporating nonfinancial risks like cyber [threats], taking into account second-round effects of shocks, broadening the scope beyond just banks, and resisting a tendency to disaster myopia (or the tendency to underestimate adverse outcomes) as memories of the financial crisis recede into the past. Herring shared his insights on tackling some of those challenges. An edited transcript of the conversation follows.

Knowledge@Wharton: Before we talk about your paper, perhaps we could spend some time on whats going on at present. In response to the coronavirus pandemic, the Federal Reserve has cut interest rates close to zero, and it has provided enormous liquidity support to a wide range of markets. What is your assessment of the crisis that the coronavirus pandemic has sparked? What do you think of the Federal Reserves actions?

Richard Herring: I think the intense focus on the role of the Fed in these circumstances is fundamentally misplaced. At best, the Fed can play a supporting but significant role to ensure that the macroeconomic shock caused by the pandemic and the policy response to combat it is not compounded by a financial crisis. The first-order concern should be to support and improve the healthcare infrastructure and provide support for people who are suddenly without income. The Fed cannot stop the pandemic, but it can provide enough liquidity to keep the financial system functioning. One of the key challenges ahead for the financial system will be coping with the credit risks that inevitably materialize because much of the economy has come to a full stop. If firms dont have revenue, they wont be able to meet their commitments. They will be under enormous pressure to reduce costs and, sadly, that will involve terminating much of their workforce. Of course, this response will exacerbate economic conditions.

Economic conditions are made still worse by the panicky responses among consumers who are trying to stock up on everything from canned goods to toilet paper. This behavior can create shortages where they need not exist. We have seen parallel behavior in financial markets with the sudden dash to cash, that roiled markets. Luckily the Fed can remedy that problem by supplying more cash, but it is powerless to deal with shortages in the real economy. Hoarding reflects a loss of confidence in the system and a worrisome unraveling of society.

We would have been in much better shape if the responsible officials had taken appropriate precautions in response to the many simulations that have been conducted showing the potentially devastating consequences of a pandemic. For example, in 2005 the Wharton Financial Institutions Center co-sponsored a conference with the Brookings Institution and The Goldman Sachs Global Markets Institute to identify the top ten financial risks to the global economy. These risks included a global pandemic and featured a simulation showing how much more rapidly the Spanish flu of 1918 would have traveled and how much more devastating it would be because of modern international air travel. Although governments and international organizations have conducted these kinds of stress tests, there has been no corresponding obligation to take appropriate measures to protect against these adverse scenarios.

In contrast, banks have been required to raise capital to absorb losses in response to severely adverse economic scenarios. Unfortunately, the responsible officials do not appear to have subjected themselves to comparable disciplines such as stockpiling enough protective gear for healthcare workers and first responders, necessary life-support equipment and investing in tests to detect infection and vaccines to protect. These measures might have enabled leaders to put in place a more effective response to the advance of the virus without shutting down much of the economy. But thats not where we are now. Policymakers completely underestimated the severity and speed of contagion, and we are ill-prepared to deal with a pandemic.

Policymakers completely underestimated the severity and speed of contagion, and we are ill-prepared to deal with a pandemic.

Given where we are now, what can the Fed do? Its important to keep markets functioning. Were going to see volatility because nobody can predict with certainty what the longer-term impacts of this epidemic will be and so the price discovery process will likely remain a source of volatility. People really dont understand the longer-term effects of the measures were taking to try to stem the panic, and we dont know how long the healthcare crisis will last. If its just a couple of months, we should be able to bounce back relatively quickly. If it ends up lasting much longer, however, recovery will be much more difficult.

Thankfully Congress and the Administration have taken some bold actions on the fiscal side, because the blow to income is where the most painful economic impacts are being felt. If we dont act to help people who have suddenly lost their income the human tragedy will be appalling.

But to return to the Fed, I would give them high marks for their quick action to avert a widespread liquidity crisis. They clearly learned many lessons from 2008-2009 and acted quickly to put in place facilities to support liquidity in several important markets. They also deserve praise for rapidly activating swap lines with other major central banks in recognition of the fact this is not just a U.S. problem. The pandemic is worldwide, and an international financial crisis would cause an even larger decline in world demand and production than we now face. Although its difficult to achieve in the current climate, global cooperation is more important than ever. Inadequate cooperation may cause an even larger collapse and much slower recovery.

I am less enthusiastic about the Feds dramatic cut in interest rates. It strikes me that lowering already historically low interest rates is purely symbolic and undermines the power of a tool they may need later. Its unrealistic to expect that investors or consumers will respond to a decline in the level of the interest rate under current conditions in which the problem is a government-directed shut down in economic activity. When we emerge from the current period of life support to begin an economic recovery a cut in interest rates might be very helpful. But if interest rates are already near zero, theres no scope for deploying this traditional tool of monetary policy without reducing interest rates to negative levels. Having witnessed the virtual impotence of negative interest rates in other economies, the Fed seems determined to resist that course of action.

Its important to ensure temporary aid does not become a permanent subsidy.

Knowledge@Wharton: Since you mentioned credit risk being a critical issue, what do you think should be done about that?

Herring: It depends on the nature of the problem. If it is a fundamentally sound business that we can expect to bounce back, we surely dont want to take it through bankruptcy. Thats costly. It can destroy the value of organizational, physical and human capital.

Allocating this kind of support can be very tricky because it requires judgments about long-term viability, which are somewhat subjective. Ideally, we should offer support to any firm that is temporarily in distress. That is a rationale for helping, for example, the airline industry or hundreds of thousands of small restaurants. But its difficult to administer, and its important to ensure temporary aid does not become a permanent subsidy. In the beginning, however, it seems wise to err on the side of assuming were facing temporary liquidity problems until we fully understand how the economic shock is going to play out.

The Fed lacks the authority to take credit risk, but it can establish facilities underwritten by the Treasury than can do so. It resurrected several such facilities that had been deployed during the 2008-2009 crisis before passage of the CARES Act, which has greatly expanded Treasury resources for funding additional such facilities.

Knowledge@Wharton: Markets have continued to be volatile despite the Feds actions. Is there anything else that can be done to calm things down for investors?

Herring: We should not assume that the Fed can control expectations. In each recent case in which it has taken dramatic actions, the impact on expectations has been at best modest and transitory. The first dramatic cut in interest rates (on March 3), worked for about 14 minutes, and the bold actions taken on Sunday March 15, did not prevent markets from plunging. (The Dow fell nearly 3,000 points on March 16, the second-worst day in its history.) There is also a risk that people may take these heroic actions as a sign of panic. But more fundamentally, stabilizing expectations in these circumstances depends on limiting the spread of the virus and enabling the resumption of normal activity. This is first and foremost a healthcare crisis, which the Fed is powerless to influence.

We are in for a prolonged period of uncertainty because the market is trying to figure out what the longer-term value of various firms will be. The longer the pandemic persists, the greater the likelihood of changes in the structure of the economy. For example, we may find that many tasks can be performed more efficiently at home without wasting the time and resources of commuting. This could reduce the demand for office space and lead to different choices about where people choose to live. Although complex international supply chains and just-in-time inventory practices have made substantial contributions to reducing production costs, countries will inevitably question whether the efficiency gains justify the vulnerabilities exposed by this pandemic. It seems possible that we may experience a disintegration of the world economy that will prove costly to all countries.

The longer the pandemic persists, the greater the likelihood of changes in the structure of the economy.

We can see evidence of this response in the nationalistic actions of many countries that are trying to limit the export of anything needed to fight the pandemic. Its entirely understandable, but it means that you cant rely on these sources of supply when you need them most. I suspect we will increasingly see national defense arguments advanced for protecting manufactures of inputs into things like pharmaceuticals and medical equipment. Moreover, once that sort of argument gains traction, we can expect a growing number of industries to claim that they are vital to national defense. After all, the U.S. once protected makers of ice cream under the rationale that it is vital to the morale of our troops.

Knowledge@Wharton: Some commentators have said that the coronavirus crisis is Dodd-Franks first real test. Do you agree with that view? (The DoddFrank Wall Street Reform and Consumer Protection Actwas passed in 2010 as a response to the 2008 financial crisis.)

Herring: If you take the broad view that Dodd-Frank was supposed to increase the resilience of the banking sector, it seems to have served us well. We have implemented a number of policy reforms based on lessons drawn from 2008-2009 crisis increases in the quantity and quality of capital, implementation of a leverage ratio, introduction of liquidity requirements and living wills and, of course, stress test to ensure that banks are prepared to survive a severely adverse economic scenario.

That gets us around to the topic of the paper (Objectives and Challenges for Stress Testing), because one of the things that we learned from the crisis was that the capital adequacy of banks shouldnt be judged on the basis of current economic conditions alone. What we really care about is whether the banking system can continue functioning effectively even under a severe shock to the economy.

We discovered in the 2008-2009 crisis that as a result of ill-considered moves by the regulators and some very aggressive actions taken by banks, some international banks were operating with leverage above 50-to-1 (assets to equity). This assumes an incredibly optimistic view about the growth and stability of the world economy. If a banks assets should decline in value by a mere 2% it would be insolvent. Realistically, even a loss of 1% would be likely to bring the bank down because it would lose access to liquidity and be forced to incur losses on the forced sale of assets.

What we faced in 2008-2009 was a collapse of confidence in the plumbing of the world financial system. In recognition of the central role banks played in creating vulnerability to a financial crisis and in transmitting and amplifying the shock to the real economy, the Group of 20 (G20) the political leaders of the 20 most economically important countries placed reform of bank regulation at the top of the agenda. These reforms have been broad and global in reach and included, among many other measures, a requirement to institute stress tests.

The capital adequacy of banks shouldnt be judged on the basis of current economic conditions alone. What we really care about is whether the banking system can continue functioning effectively even under a severe shock to the economy.

Obviously, stress scenarios developed for the banking system did not include a global pandemic, but this does highlight an important issue. Stress tests should include scenarios that go beyond historical experience. A fundamental limitation of most statistical analysis is that its based on what has happened in the past. But the future is not bounded by experience. We may find ourselves confronted by a shock that has never occurred before an extreme tail event. Such events do not happen often, but unfortunately were living through one now.

The stress tests certainly didnt anticipate the pandemic, but it did include a severe recession. Banks were required to include a substantial amount of equity in their financial structures that would enable them to remain well-capitalized, even if a very damaging recession occurred. This is happening now but not because of a contemplated, conventional macro shock. This highlights an important point: When we dont know the future, the main source of resiliency in the banking system is its ability to absorb loss. Were very fortunate that the U.S. banking industry seems to be quite robust entering this crisis. Unfortunately, this is less true in the European Union.

I should note that it is important not to overstate what stress tests can do. Stress tests are designed to ensure that banks do not have to reduce lending to remain well capitalized. But that doesnt imply that banks will choose to lend. Most U.S. banks are comfortably above their required regulatory minimums, but we dont know how they will choose to use this financial flexibility.

We can, however, be confident that this time the banking system will not make the problem worse, which is a nontrivial accomplishment. During the crisis in 2008-2009 many banks were on the brink of insolvency (and, frankly, some had gone over the brink) and so they were forced to retrench. Very few were in shape to support an economic recovery thus contributing to the length and depth of the recession. Of course, banks will not lend to firms with no revenue, but parts of the CARES Act may provide guarantees that will enable banks to participate in current life support measures and aid the eventual recovery.

Knowledge@Wharton: You write in your paper that stress testing was an effective crisis-fighting tool that banks used during the great financial crisis 10 years ago. Do you think its still the right tool today, or do we need other tools to deal with the current crisis?

Herring: My co-author Til Schuermann distinguished peace time from war time stress tests. Peace time stress tests are conducted during normal economic conditions when the attempt is to anticipate shocks that might occur. War time stress tests are conducted during a crisis. This is the circumstance in which system-wide stress testing began. It was an attempt to restore confidence in banks and regulators at a time when the public had lost confidence in both. The regulatory ratios were shown to be entirely misleading. The regulators had failed to keep banks safe and had no coherent plan for resolving insolvent institutions. They needed a way to reassure the public that they now understood the dimensions of the problem and how to fix it. This was the origin of the first stress test.

In wartime, its relatively easy to design a stress test because the relevant stress is all too obvious. In peacetime, however, the challenge is much more difficult because no one can know what stress is relevant. Its certainly possible, indeed likely, that reasonable people may disagree about what should be in a stress scenario and how seriously adverse it should be. And since the banking industry knows the more adverse the stress in a scenario, the more capital they will need, they will be very critical about severely adverse stress scenarios.

Some politicians have proposed subjecting stress scenarios to a period of public comment, which I think is a terrible idea. The objective should not be to arrive at some sort of consensus forecast, but rather to probe whether banks will be resilient, even if something quite unexpected and exceptional happens. These kinds of pressures to make stress tests more predictable indicate some of the challenges regulators face in maintaining the integrity of stress tests during peace time.

One obstacle to designing more flexible stress tests, however, is that they are very expensive. Collectively, banks have spent billions in developing the infrastructure to be able to conduct these tests. The Fed has made huge expenditures as well. Given these substantial sunk costs, theres an understandable reluctance to change the models much. Fundamentally, youre trying to see whats likely to happen to bank income statements and balance sheets, given a certain kind of scenario. The scenarios focus on unemployment, interest rate and inflation shocks, which are certainly important. But they are not the only things we need to worry about.

The next crisis may have nothing to do with any of that. It may be a pandemic, a climate shock, a cyber-attack or a natural disaster of some sort. And, because of the huge investments in the current stress-testing infrastructure, theres resistance to trying to evaluate other shocks that dont neatly fit the models we have in place. Banks also have an innate reluctance to introduce new kinds of stress scenarios also because they suspect one consequence may be a requirement to accumulate more capital.

This is a serious problem in the longer term, but perhaps the fact that we are now experiencing a severe, unanticipated shock will dampen some of the pressures for reducing the severity of the adverse scenarios. Nonetheless, its a simple fact of human behavior that the longer the stretch of good outcomes weve experienced, the less our concern about bad outcomes. Weve just experienced an abrupt end to one of the longest economic expansions in our history. This undoubtedly contributed to the record highs in equity markets we enjoyed earlier this year. Suddenly, however, we find ourselves in a very different world. We tend to forget how suddenly these shifts can happen.

Its a simple fact of human behavior that the longer the stretch of good outcomes weve experienced, the less our concern about bad outcomes.

Knowledge@Wharton: Thinking back about when you first started working on the paper, what were some of the main questions you were trying to answer? What were some of the key findings from your research?

Herring: This paper was part of a large project to produce a Handbook of Financial Stress Testing that is being published by Cambridge University Press. Our assignment was to think about the rationale for stress testing, how it has evolved, and to identify some of the key challenges looking ahead.

We began by distinguishing different objectives for conducting stress tests. The idea of conducting stress tests is not particularly novel. Weve seen them deployed in engineering and in medicine, for example. And, well before the 2008-2009 financial crisis, many financial institutions were stress testing trading positions and portfolios to anticipate how much they might lose under a variety of circumstances.

What was new about the kind of stress testing that emerged in response to the crisis was the attempt to look at all major banks, applying the same stresses to each institution at the same time. This permitted the authorities and the public to gain a perspective on the resilience of the banking system as a whole. The first stress test applied to 19 bank holding companies that represented about two-thirds of bank lending and to determine whether they were prepared to deal with a substantial worsening of economic conditions and still have sufficient capital to meet their regulatory capital requirements.

The results were not encouraging. Ten of the 19 institutions failed the stress test, a result the U.S. authorities disclosed to the public. This had the benefit of assuring the public that the stress test was rigorous and conducted with integrity. The obvious downside risk of identifying the banks that failed the test was limited by the availability of standby public funding, which assured anxious creditors that the failing banks would be recapitalized.

When the European Union tried to conduct comparable tests, it lacked the fiscal resources to recapitalize banks that failed the stress test. It seems likely that officials in Europe tried to finesse this problem by reducing the rigor of the stress tests so that nearly all banks passed. While this temporarily bolstered confidence, the widespread bank failures that occurred soon thereafter undermined confidence and raised troubling questions about the competence of the authorities. If the stress test isnt credible, theres no point in doing it.

When we dont know the future, the main source of resiliency in the banking system is its ability to absorb loss.

The success of the wartime stress test in the U.S. encouraged Congress to include stress tests in the Dodd-Frank reform package as a way of ensuring that the banking system would remain healthy and resilient. It was a huge advance over traditional regulatory tools used to monitor the safety and soundness of banks. Before the adoption of stress tests regulators relied primarily on ratios based on accounting data, which at best provided information about what had happened in the past, but they conveyed almost no useful information about the future. Yet what we need to know is whether the banking system will be resilient even if bad things happen in the future. The introduction of stress testing reframed the way the safety and soundness questions were posed. It was no longer, Is your bank currently well capitalized? It became, Is your bank sufficiently well-capitalized to deal with the kinds of stresses that might happen in the future?

Significance of Macro Stress Testing

Stress testing serves two different objectives. One is focused on evaluating the safety and soundness of individual institutions. This corresponds to the traditional microprudential objective of bank examiners but is a much more transparent approach to prudential supervision. The other objective is termed macroprudential. Its an attempt to evaluate the resilience of the banking system and ensure it can serve the real economy in a severely adverse downturn in activity.

These objectives are similar but not identical. Some measures taken to strengthen the safety and soundness of individual institutions may inadvertently undermine macroeconomic stability. For example, many prior efforts to reform capital regulation have aimed to make capital requirements more risk sensitive. To the extent these reforms succeed, banks will be obliged to increase their ability to absorb loss when the economy enters a recession. As a practical matter this often means they will need to reduce lending in order to comply with regulatory capital requirements. Although this may strengthen the safety and soundness of individual banks, the reduction in lending will reduce consumption and investment and exacerbate the recession. Very risk-sensitive capital requirements tend to amplify economic cycles.

Stress tests in the U.S. have been designed to reduce this pro-cyclicality of capital requirements to better support macroeconomic objectives. This has been accomplished by automatically increasing the severity of the severely adverse scenario as the unemployment rate falls below 10%.

Over the past decade, as the unemployment rate has fallen to record low levels, the stress tests have been getting tougher. This is the way macroprudential policy is supposed to work. Capital requirements increase in an economic expansion reducing the tendency of banks to over-lend and decrease in a downturn to reduce the tendency to under-lend.

Capital requirements increase in an economic expansion reducing the tendency of banks to over-lend and decrease in a downturn to reduce the tendency to under-lend.

Ironically, a more powerful countercyclical impact is due to the requirement that banks prefund all their expected distributions of capital over the next nine quarters. That has a strong counter-cyclical effect because understandably banks want increased payouts to their shareholders when times are good. This requirement means that they will need to accumulate more capital to fund the intended payout in addition to the amount they need to accumulate to cope with the more severe stress scenario.

Regrettably, in a recent reform, the Fed has relaxed the requirement to prefund planned distributions to shareholders. Banks need now prefund only four quarters of average dividends, which will reduce the countercyclical effectiveness of the stress testing regime.

Knowledge@Wharton: What are the implications of your findings for regulators and bankers?

Herring: The first point is that stress test should be strengthened, not relaxed. The second point is that we need to make them more versatile, and we need to think about the kinds of stresses we should worry about that dont readily lend themselves to conventional macro-modeling. And we should consider several kinds of stresses that may emerge in the financial system outside the banking sector.

Stress tests should be extended beyond banks to parts of the rapidly growing Shadow Banking sector. At present only very large banks are scrutinized carefully for their ability to withstand shocks. As more and more activity takes place outside the banking system, we ought to have a better understanding of how these entities will react in a severely adverse scenario. We dont have a mechanism for doing that. It requires significant coordination between bank and nonbank regulators, and some sort of oversight of important players that are not regulated by any national authority.

The FSOC (the Financial Stability Oversight Council created by Dodd-Frank) in principle should shoulder this responsibility, but it has no inclination to do so. FSOC has moved from an initial position of monitoring all financial institutions that received support from the Fed during the 2008-2009 crisis to a policy of more or less saying, Unless we can make a convincing case that youre a systemic threat, were not going to exercise any prudential oversight. I think thats a serious problem.

We ought to be thinking about harmonizing stress tests globally.

We also ought to be thinking about harmonizing stress tests globally, because the financial system is global and if things go badly wrong in Europe or Asia, then were going to have problems here as well. We ought to understand those interconnections and have a sense of the measures we could take to mitigate them, should it be necessary.

We should think about other kinds of stresses. To some extent, we are seeing the benefit of earlier attention to nonfinancial shocks. Almost all the major financial institutions are working remotely. The banks have adopted measures that facilitate a transition to working remotely at least in part because regulators have required them to have robust continuation of service and recovery plans. They have undergone examinations to show they could keep operating even if some shock put the headquarters out of commission. This isnt a new concern. For a long time, the largest banks have understood they need backup facilities to keep operations running if something should close down operations at headquarters.

The acid test came on 9/11. The Bank of New York, which is the largest custody bank and central to the payment system, believed it was adequately backed up. But its backup facility was on the same power grid and the same transportation network as the headquarters. This redundancy proved useless against the kind of shock that occurred because people couldnt get to work at the headquarters or the backup facility and lost power at both locations. The bank was essentially offline for two to three weeks.

Since that time, banks have been very thoughtful about how they can relocate work to facilities that have a different transportation grid, a different power grid, and access to a different pool of labor. Theyve also invested heavily in enabling employees to work from home.

We are in much better shape to deal with the operational consequences of the pandemic not because banks anticipated it, but because of what we learned from the 9/11 tragedy: to ensure operational resilience, you have to make sure that you have diversified the whole variety of inputs you need to keep the business going.

If theres a downside, it is that stress testing is extremely expensive.

Knowledge@Wharton: Is there a downside to stress testing?

Herring: If theres a downside, it is that stress testing is extremely expensive in part because of the detail with which it is overseen. There are heavy demands for documentation and rigorous requirements for ensuring the quality of data and validating models. Much of this is necessary. These costs make the system much less agile than it should be.

Fortunately, many of these expenses are in the nature of start-up costs. The continuing costs are significantly lower. And improvements in in software should reduce them over time admittedly, at the cost of substantial investments in software.

Its important to identify the additional data we need to collect to improve the relevance and effectiveness of stress tests. A lot of the problems we faced with the [2008] subprime crisis was that the authorities had no true understanding of the scope and size of the market. That, I think, remains a difficulty with respect to other innovative markets that might cause difficulties in the future.

This is the function many hoped the Office of Financial Research (an independent body within the Treasury department) would serve, but it has not received the financial support and political backing it needs to perform this function as well as it should. Its important to have some entity that is scanning the horizon and trying to figure out where the next shock may come from, identifying the information we need to be able to evaluate the potential dimensions of the shock and the likely consequences if the shock actually occurred.

Knowledge@Wharton: What are some of the questions for future research that youd like to tackle about these issues?

Herring: One problem, which is technical but important, is how to take account of second-round effects. Our current models focus mainly on the initial hit to banks income statements and balance sheets. But the actions banks take will affect what their customers and counterparties do. And, of course, these actions will, in turn set off additional actions by banks. These general equilibrium effects can be significant. They are difficult to model but important to understand because sometimes they can be as serious as the initial shock.

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Can Stress Tests Be Effective Crisis-fighting Tools for Banks? - Knowledge@Wharton

Human Behavior

Dont Like What the Virus Models Say? Try Building Your Own – Yahoo Finance

(Bloomberg Opinion) -- These are the best of times for disease modelers. They have the ear of presidents and prime ministers, and are getting huge amounts of news media attention. Their work is surely havinggreater impact now than ever before.

These are also the worst of times for disease modelers, because they have to model the behavior not just of diseases but also of the humans that carry them. This is always tough to get right, but far tougher when presidents, prime ministers and otherpeople are listening to the disease modelers and in some cases rapidly changing their behavior in response.

This conundrum has delivered some big forecast shifts. On March 16, the Covid-19 Response Team based at Imperial College Londons MRC Centre forGlobal Infectious Disease Analysiswas predicting thatin the (unlikely) absence of any control measures or spontaneous changes in individual behaviour, the disease would cause approximately 510,000 deaths in GB and 2.2 million in the US, not accounting for the potential negative effects of health systems being overwhelmed on mortality, a frightening forecastthat was said to have had a big impact at 10 Downing Street and the White House. Nine days later, the head of the team, Imperial College epidemiologist Neil Ferguson,was telling Parliament that U.K. deaths probablywouldnt top 20,000.

This was not the embarrassing admission of error it was made out to be by armchair epidemiologists on Twitter and in the media. Ferguson was simply saying that the worst-case scenario his team had modeled and dubbed unlikely had become even more unlikely as the government shifted policy and Britons began to take the disease more seriously, and that the best-case scenario in which social distancing efforts and case-based tracing and isolation halted the spread of the disease until a vaccine arrived had become more likely. Still, his updated mortality estimate was a little puzzling even for those of us who had read the initial report, and will almost certainly turn out to be too optimistic, given that the U.K. has alreadyreported more than 12,000 coronavirus deaths, with the daily death toll still rising, and thats probably a significant undercount given that it doesnt include most deaths from the disease outside of hospitals.

The model-based forecasts of coronavirus deaths and hospital-bed needs from the Institute for Health Metrics and Evaluation at the University of Washington havent produced quite that much whiplash, given that the first one on March 26 already assumed a significant amount of social distancing. But they too have produced rapidly changing estimates and a lot of head-scratching from observers by shifting within weeks from predicting that U.S. hospitals would soon be overwhelmed with Covid-19 patients to estimating now that peak resource usehas passed while, with some local exceptions, coming far short of exceeding hospital or intensive-care-unit capacity.

So one can kinda sorta see where Republican U.S. Senator John Cornyn was coming from when he tweeted last week:

The Wikipedia page that Cornynlinks to says the scientific methodinvolves formulatinghypotheses,making deductions based on them, testing those deductions against experimental or measurement-basedevidence, and then refining or eliminating the hypotheses. Far from being an indictment of the disease modelers, though, this describes more or less what theyve been doing: Formulating hypotheses about the behavior of the SARS-CoV-2 virus based on what theyve seen of it so far and what they know about other viruses, making deductions about the course of the disease based on those hypotheses and some hypotheses about human behavior, and then refining those hypotheses as new evidence comes in.

No, these arent thecontrolled experiments of laboratory science, but such modeling is probably the mostscientific way to tackle an emergent phenomenon like a pandemic or, for that matter, climate change although the disease modelers have the advantage of getting useful feedback on their forecasts much more quickly than the climate modelers usually do. The results of the Covid-19 models shouldnt be taken as the final word. Far from it. But they offer useful on-the-fly guidance that it would be ridiculous to ignore just because the eventual reality often turns out not to match the forecasts.

Story continues

To use these forecastsintelligently, I wonder if it might help if more politicians, journalists and others tried their hand atdisease modeling to get a sense of how it works. This is not hard to do these days, thanks to the excellentCovid-19 Scenarios site developed by scientists at the University of Basel in Switzerland and the Karolinska Institute in Sweden. Built around a simpleSusceptible-Infected-Recovered model of the sort that epidemiologists use, it allows users to tweak parameters ranging from Covid-19sreproduction rate (R0), a measure of how many people a person with the disease can be expected to infect,to its seasonality, its fatality rate and the expected length of hospital stays, then forecasts the diseases spread and impact based on demographic data from just about every country on earth. The site also allows one to impose interventions of varying duration and effectiveness and see what kind of impact they have, although at this point it doesnt say what exactly those interventions are (theyre working on that).

The horrifying (and by now seemingly quite unrealistic) intervention-free baseline of the model for the U.S. is that 95% of the population gets the disease and that a little over 1% of the infected, 3.3 million people, die. Thatfatality rate is not the unrealistic part, with estimates from epidemiologists so far seeming to convergearound 1%or a little lower. A much higher 6.2% of confirmed coronavirus cases worldwidehave died, but theres ample to reason to believe that confirmed cases represent a fraction of infections. There have been suggestions that they represent a quite tiny fraction, meaning that the disease is already widespread, the fatality rate is lower than the seasonal flus 0.1%and itll all be over soon. But local experiments with widespread or randomized testing for the disease have not backed up this view. A recentUniversity of Bonn study of the hard-hit German town of Gangelt, for example, found that 15% of residents were either infected with the new coronavirus or had antibodies indicating that they had been. This made for a fatality rate so far of 0.37%, whichis (1) several times worse than the seasonal flu, (2) possibly skewed by undercounted deaths and (3) likely to go up with the passage of time.

Thefatality rate could go downthanks to new treatments, or up if hospitals are overwhelmed. But 1% seems both reasonable and useful as a starting point, in part because it makes so clear that the key variable in most forecasts is how many people would be infected. Aforecast of 60,000 deaths in the U.S. from the coronavirus, the current working assumption at the White House, implies at a 1% fatality rate that only about 6 million people, or 1.8% of the population, will get the disease. (Given the greatly varying severity of the disease by age, it could also imply that more younger Americansget Covid-19 and that relatively few over 65 do, but Im trying to keep things simple here.) The 2.2 million-deathforecast in the Imperial College worst-case scenario, meanwhile, implies that about two-thirds of the U.S. population would get it, at or near the oft-cited threshold for herd immunity whereso many people have recovered from a disease and become at least temporarily immune to it that it can no longer spread. TheH1N1 pandemic of 2009-2010 stopped well short of that, though, with just under 20% of the U.S. population infected and the disease in decline even before a vaccine becamewidely available. That sounds encouraging, but if Covid-19 were to infect 20% of the U.S. population, the expected death toll (againassuming the age distribution of cases is the same as that of the population) would be 660,000.

My point in sharing all this morbid information is that if you want to criticize one of the model-based coronavirus forecasts as too pessimistic, or toooptimistic, you kind of need to have your own forecast of how many people will be infected and be willing to adjust it as new information comes in. Not so easy, right?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of The Myth of the Rational Market.

For more articles like this, please visit us at bloomberg.com/opinion

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Dont Like What the Virus Models Say? Try Building Your Own - Yahoo Finance

Human Behavior

What We Do (And Dont) Know About When Chicago Will Reach Its COVID-19 Peak – WBEZ

When it comes to COVID-19, no one has a crystal ball.

State leaders expressed some cautious optimism this week as data show the number of new COVID-19 cases leveling off in Illinois as the state continues to flatten the curve.

But despite extensive modeling, its been difficult to pinpoint whether the worst of the pandemic is over in Chicago, when that might be or what lies ahead.

While models can guide leaders and doctors, they arent perfect. For one, theyre only as good as the data fed to researchers, and local researchers say its been difficult to get that data quickly.

This lack of structured surveillance and sluggish data flow from [the Illinois Department of Public Health] to researchers constrain our ability to understand the current situation and evaluate the effects of potential interventions, said Sarah Cobey in an email. She is principal investigator at the Cobey Lab at the University of Chicago where she and her team study the ecology and evolution of pathogens.

Here are a few other reasons experts say its so difficult to know when the worst of this pandemic is behind us.

Testing for coronavirus hasnt been available enough across the United States to truly understand the extent that the virus has spread in our local communities.

Until we really know those metrics its hard to get a handle on planning on how this may evolve over time, said Dr. Ronald Hershow, director of the division of epidemiology and biostatistics at the University of Illinois at Chicago.

As testing expands, those models change, which experts say is positive.

That's why the numbers have all changed in the last 36 hours, said Dr. Robert Murphy, executive director of the Institute of Global Health at Northwestern University, on Monday. Theres not going to be 100,000 deaths based on the model now. So, they've adjusted that model.

Scientists are also excited for a new antibody test that could determine how many people may have had the virus and recovered, and provide additional information about how much the virus has spread. That kind of information could be another piece of data to help improve the predictive models.

Experts said no matter how much data we have, models can't predict one vital factor: human behavior. As weeks of social distancing turn into months, will people continue to follow those directives as stringently?

You can fatigue on prevention strategies, you can burn out in them, said Hershow. To what extent will that happen and how will that influence future events regarding this part virus? There's no way of predicting that exactly.

Its unclear how the coronavirus will continue to spread during the summer months and how warmer temperatures might affect the virus. Some experts have expressed concern of a fall resurgence. A spike in cases could also happen if governments reopen society too quickly, which doctors cautioned could have swift consequences.

You may have some states that have a double hump where they go down, they lift restrictions too soon and then they go up, said Murphy.

Doctor Bala Hota at Rush University likened that possibility to dealing with a mountain range rather than a single peak.

As some states or regions bend the curve before others, its also unclear how the United States would prevent infected people from states with weaker restrictions from traveling to areas where the virus presence is reduced or eradicated.

Shelter in place and social distance are working, Murphy said. But what about these states that came on late and have more holes than rules?

He said thats where strong leadership is required.

Theres one thing all these scientists agree on: the easiest way to avoid a mountain range of surges in the coming months is to accept that things will not go back to normal quickly.

As Illinois sees cases level right now, doctors and scientists said people should not take that to mean they can ease up on social distancing.

It makes me uncomfortable even saying, Oh things are looking up a little bit, because it depends on all of us doing the right thing, Hota said.

He and others said social distancing should continue, even as governments ease up restrictions.

I would envision lets say when people go to restaurants in the fall they'll still be wearing masks and tables will be further apart and those kind of adjustments, said Hershow. Then theres doctors waiting rooms and all kinds of settings to think about.

Its likely well continue to see increased hospitalizations and even deaths over the next few weeks as the virus continues to run its course. But bending the curve and keeping it down means stopping the virus from spreading in the first place. For now, experts say that means staying at home

Its not time to relax, said Hershow. Its not Miller time as far as this virus is concerned.

Kate McGee covers education for WBEZ. Follow her on Twitter @WBEZeducation and @McGeeReports.

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What We Do (And Dont) Know About When Chicago Will Reach Its COVID-19 Peak - WBEZ

Human Behavior

Opinion: Dont Reopen San Diego Until Hospitals Are Fully Supplied with Resources – Times of San Diego

Share This Article:A Scripps Health medical team. Photo courtesy of ScrippsBy Chris Van Gorder

I have been in healthcare now for more than 40 years and have always been proud of my profession and community service but I have to admit, I have never been prouder to be both in health care and law enforcement than I am today.

Support Times of San Diego's growthwith a small monthly contribution

For healthcare providers the physicians, nurses, technicians and support teams the COVID-19 pandemic is their 9-11. Its their Pearl Harbor. For the first responders, this is a new kind of 9/11. But whatever the cause, the first responders are still running in while others run out. This time, though, they are joined by our committed health care providers.

Im also proud of how our hospitals and health care systems have come together as they always do in times of disaster to work together for the good of community. Today in San Diego County, patients are being cared for by a healthcare community not a group of independent hospitals and health systems. And that healthcare community is working hand-in-glove with our elected officials and county public health.

I want to extend thanks to these officials for listening to healthcare leaders several weeks ago when we asked to shut down much of San Diego County to flatten the curve. We asked for that so as not to overwhelm the healthcare system as we have seen elsewhere in Asia, Europe and even parts of the United States. And cautiously speaking it appears we have been successful so far. Those difficult decisions and the support of our community businesses and citizens alike have saved lives and countless heartbreak.

But now I hear talk of easing those restrictions and Im concerned once again for several reasons.

There are troubling stories coming out of Baja, Mexico, that indicate that our neighbors to the south have not been as successful as we have been in flattening the COVID curve, and we know that many people still cross the border every day for economic and personal reasons. Scripps has many employees who live in Mexico and we are concerned for them. This could be an issue for a border community like San Diego.

We know human behavior. Once we start to ease restrictions, people will start to interface more in public and we could very likely see another spike in patients thus making the success to date a moot point and a wasted effort.

And we still do not have the medical supplies necessary to treat patients in a surge, nor do we have a reliable source of resupply for hospital protective equipment for our staff and physicians.

So, I propose a trigger to start easing restrictions and reopening businesses. These will be tough decisions, I realize, and ones I dont have to make.

I learned a long time ago that to win a battle and this is indeed a healthcare battle your frontline soldiers must have the supplies and equipment needed to protect themselves and win. Battles are often won by logistics not just by the soldiers.

So, I propose that the trigger to relax regulations and reopen society be when we are sure that our healthcare providers have all of the personal protective gear they need, along with the ventilators, pharmaceuticals and other supplies required to care for our COVID-19 patients and the other emergency patients we see on a daily basis. This means we should make sure that hospitals, skilled nursing facilities, long-term care facilities and home health agencies, as well as all of our first responders, have what they need to do the job.

COVID-19 is now community spread. Its not going away anytime soon. If the powers that be reopen society before we are ready, we will see a rebounding of cases and the healthcare providers will be on the front-line of that battle as they are today. So lets make sure if we see that spike, that we are ready this time.

Shame on us as a society if we reopen before we can give these heroes that assurance. We can do this and we should do this.

Chris Van Gorder is president and CEO of Scripps Health, which operates five acute-care hospitals and 28 outpatient centers and clinics in San Diego County.

Opinion: Dont Reopen San Diego Until Hospitals Are Fully Supplied with Resources was last modified: April 15th, 2020 by Editor

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Opinion: Dont Reopen San Diego Until Hospitals Are Fully Supplied with Resources - Times of San Diego

Human Behavior

Commentary: Renewable energy must be the future, if we are to have one at all – Kenosha News

So the faster the world can minimize reliance on burning fossil fuels, the better chance we have at limiting the rise in global temperatures to 1.5 degrees Celsius over preindustrial levels, the limit scientists (yes there are such people walking among us) say we need to observe if we are to avoid the worst effects of our profligate carbon emissions.

According to Carbon Brief, observing that 1.5-degree Celsius limit will require us to reduce global coal use by 80% this decade.

The current coronavirus pandemic has, at least temporarily, made a significant impact on greenhouse gas emissions. But that reflects a stalled economy rather than smart energy consumption choices. The pandemic is a naturally occurring threat to humans, as were SARS and MERS before it. Global warming, by contrast, is being driven by human behavior; it is a self-inflicted crisis.

We can best address the climate crisis by changing practices, by converting our global economy from fossil fuels to renewable sources, by using the force of our collective will to change our collective behavior and reduce the damage our actions inflict on the environment, which we rely on for our very survival.

The stats that show we are moving in the right direction, albeit it too slowly, are a positive sign during these trying days.

But they are also a further spur to action. We can see where decisions, policies and actions lead to positive effects, but also where continued self-destructive actions beginning with burning coal imperil us all.

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Commentary: Renewable energy must be the future, if we are to have one at all - Kenosha News

Human Behavior

New York Governor Andrew Cuomo: ‘God Did Not Stop Spread Of Virus’ – Patheos

Refreshing Honesty: New York Governor Andrew Cuomo tells CNN that Our behavior has stopped the spread of the virus. God did not stop the spread of the virus.

Cuomo, speaking with CNNs Alisyn Camerota about the current coronavirus pandemic, and how he plans to move forward, said:

Look, anyone who tells you, Alisyn, I know what comes next, doesnt even understand the question, let alone have the answer. Nobody has been here before, this is totally unchartered territory. And youre right, you have different peaks of that curve in different areas, so were not talking about the next two weeks or three weeks, were talking about months, were talking about a phase to reopening, and the safe reopening. Were talking about a reopening that has a public health plan and an economic plan totally coordinated. Our behavior has stopped the spread of the virus. God did not stop the spread of the virus. And what we do, how we act, will dictate how that virus spreads.

Cuomo added:

We changed the trajectory of the virus by our actions. And thats the real important lesson to me.

Cuomo cautioned that easing COVID-19 restrictions too soon could have potentially disastrous results:

I want to get out of the house, trust me. Everybody does. But if you move too quickly and not smartly, you will see the numbers go right back up again and youll have to do another lock-down. The federal government has to be realistic about this. You cant just wish it and then it is so.

Watch the video below relevant remarks begin at the 1:11 mark:

Cuomo is right. Prayers do not effect the virus. Some imaginary God does not effect the virus. But people, human behavior, can and do effect the virus.

Yesterday, speaking during a press briefing about the number of people infected with the virus, the governor said something similar, declaring:

The number is down because we brought the number down. God did not do that. Fate did not do that. Destiny did not do that. A lot of pain and suffering did that.

While many had no problem with Cuomos refreshing honesty concerning the impotence of an imaginary God, some were disturbed by Cuomos honesty. For example:

Bottom line: In a refreshing bit of honesty, New York Governor Andrew Cuomo tells CNN that Our behavior has stopped the spread of the virus. God did not stop the spread of the virus.

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New York Governor Andrew Cuomo: 'God Did Not Stop Spread Of Virus' - Patheos

Human Behavior

Living on the edge No. 104 | Guest Column – Rawlinstimes

As the various systems of self-quarantine have been instituted across the U.S. and around the world, many people have found themselves with inordinate amounts of time on their hands. And while initially, the idea of endless free time may have sounded rather attractive, the truth is that what makes weekends and vacations so much fun is that they are a break from the challenges and drudgeries of work. Take away work and suddenly, theres not all that much to enjoy about days melting into nights with little happening in between.

Now to be fair, these arent normal circumstances, and this present situation isnt exactly a vacation. Its like winning a free trip to Disneyland, only to find when you arrive that all the rides have been shut down and the concessions are closed. Its all well and good to be told to stay home from work, but when you get there only to find that theres nowhere to go from there, no fun places you can go out to visit, no friends or family you can hang with well, heck, why not be back at work? And worse, for many this is hardly a vacation when, after a short while, you find out that theres no paycheck coming in, or worse, no job to go back to.

For me and so many others, this has been a time to resort to various vices including, of course, the use of social media. True, there are some folks who to this day, avoid these media, and I get that. In fact, if ever there was a time to see some of the worst aspects of human behavior writ large, it is now, spread throughout our various feeds. Every crank, bully and conspiracy theorist is taking to his (or her) keyboard with a fury these days, spouting off in ways that are in no way helpful when people are anxious and fearful. At a time when the most basic of concerns are in question our health and the health of our loved ones there are those who seek to pursue their own agendas for their own questionable purposes.

And yet, above the din of anger and angst, there has arisen a chorus of voices who simply wont have it, and it is these folks who deserve our attention, our appreciation, and our respect. While we are feeling frightened and insecure, there are some who seek instead to bring us what we most crave: firstly, information, because some of us can never get enough news about the statistics, seeming to believe that by knowing the math of it all, we can figure this madness out, as if it were some complex but solvable calculus equation (yes, I would put myself into this category).

And for others, the social media masters provide something of equal value in the form of distractions. Some post random, campy jokes. Others post humorous photos of their pets. And still others come up with goofy, mindless games and challenges that, in truth, are nothing more than time-wasters. Examples include the suggestion of posting photos of a landscape in which you do not appear, or of posting a photo of yourself aside a photo of your eldest child.

Most recently, a number of challenges have been posted in which one is asked to answer a series of personal (yet irrelevant) questions such as Have you ever acted in a play? Hitchhiked? Won a trophy? And lest we believe that such challenges are American-specific, I recently saw an Italian version of this silliness, including a questionnaire completed by one of my Sicilian cousins. The list varied a bit, however, and included questions such as Have you ever climbed a volcano? (To which, curiously, he answered yes).

Lastly, there is a small genre of spiritual and religious material now manifest across the media. Obviously, this is a time of anxiety and uncertainty. And yet by the very nature of the situation all peoples of faith, regardless of conviction, are forced to face these worries while separated from one another, outside of the traditional frameworks of prayer and mutual support. But again, social media (and various video conference interfaces) allow some to experience a shared spiritual connection. It is not ideal, nor does it supplant a face-to-face experience. But under the present circumstances, it is certainly better than nothing.

As those familiar with 20th century history are aware, the heyday of American cinema coincided with the WWII era. In the pre-television age, the movie house served as both a space of information as well as a center of entertainment, release and distraction from the worries of the day. News of the War was disseminated in twice-weekly newsreels, which were played before each feature film. In this way, the big screen served as a vehicle of common cultural experience and the reification of American identity building.

Today Facebook, Instagram and other social media platforms provide the virtual space where, on any given day, information, values and attitudes are developed and then disseminated. Ironically, these media are ideally suited to the present situation, in which we may only connect from afar, may only speak so long as there is a barrier between us and where, (contrary to what I have written elsewhere), sharing a #virtualcoffee or #virtualbeer with a friend is now not only possible, but in fact, preferable to the real thing.

As we continue to shelter in place, it is in our best interests to think about something, anything, but the elephant in the livingroom. And so, for now at least, we turn to the small screen. For like the big screen back in the day, it provides us with a particularly ideal portal through which to access what we most need right now the ability to overcome time and space, and in so doing, to imagine a better tomorrow.

Steven C. Dinero, PhD is the Executive Director of the Carbon County Museum.

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Living on the edge No. 104 | Guest Column - Rawlinstimes

Human Behavior

Risk management in a time of crisis – Investment Magazine

Markets in disarray are where long-term investors make their money. Investing countercyclically when many others without long-term liquidity are selling is a clear advantage for long-term investors. Investors that perform the best over the long term will have taken calculated and deliberate risks and put money to work during crises like this one.

But how? While we didnt predict a pandemic, FCLTGlobal had market events like this one in mind when we published Balancing Act: Managing Risk for Multiple Time Horizons, and that research provides tools that long-term investors can use right now.

Rebalancing consistently with your funds policy is one such tool.

Take for example a message that one of us sent last week in the capacity of an endowment trustee advising the full board: Panic is contributing to the market crash and, when we see opportunities to buy fundamentally-strong assets at a discount, we will. This may create the short-term appearance of compounding our losses, but the long-term effect of buying low will be an opportunity to sell high in the future, add real value to our fund, and increase grant-making.

Research associated with Balancing Act discusses why each part of this message is important. It explains the investment tactics in terms of the organizations purpose: whether that is grant-making, building retirement savings, or funding liabilities. It sets expectations honestly: our tactics are going to make things seem worse before they seem better, but its worth it for fulfilling our purpose. And it defines the tactic rebalancing consistently with policy in terms that will be familiar to a range of stakeholders, not just the finance people: buying fundamentally strong assets at a discount.

Behavioral scientists note the importance of the framing effect, particularly as we react more strongly to losses that we do to gains. Rather than framing the conversation around peak to trough losses, investors that track how they are progressing towards their long-term goals even if they may have taken steps back from their goals through this time are more likely to be confident in their decision to proceed with rebalancing in down equity markets.

Drawing on set-aside funds is another tool that long-term investors can use right now. The way to permanently impair capital in a down market is to sell positions, realize losses and remove the ability to bounce back. Crises like this are why set-asides exist. Using the set-aside money for liquidity spares organizations from having to realize losses in the core portfolio.

We all recognize this mental-accounting behavior. This same endowment uses exactly this sort of set-aside account to shelter eighteen months worth of grantmaking and operational costs from market risk. Having that resource adds to the organizations liquidity and the boards confidence in a way that makes rebalancing possible.

True impairment means becoming unable to do the organizations work or fulfill its purpose. This set-aside, or rainy-day fund, provides the staying power to continue the work long enough for markets to rebound. Furthermore, because the organization has the set-aside as a source of funding during down markets, there is more patience with performance in the core investment account even to the level of being willing to rebalance into highly-volatile markets.

All of these mechanisms reflect plans put in place long before the crisis. Ideally, investors have planned strategically and calmly as portfolio and investment allocations are made, rather than allocating capital based on the emotions of a particular days or weeks disturbances.

Every investor will be in different positions of planning, using set-asides, and rebalancing. The key long-term behavior is not arriving at a single right answer, but having these tools come together in a strategic and internally coherent way with respect to each investors purpose.

Risk models or historical statistics will not provide a definitive answer about how to invest in markets like these. We typically think in terms of probabilities over an investment time period. However, the most common projections of risk probability of loss and value-at-risk pertain only to the end point of the investment, not to the pathway. What is important is to account for multiple time horizons within risk models with such statistics such as first-passage or within-horizon probability of loss and value-at-risk.

Lets take for example a $100m allocation with a value-at-risk of $10m according to a 95% confidence interval. In more common language, this means that the investment will have an ending value of $90m or more in all but five cases out of a hundred. What the statistic does not mean, though, is that the valuation of this investment will remain above $90m throughout the investment horizon in all but five cases out of a hundred. Quite the contrary: it is a statistical truism that the likelihood of a temporary dip in valuation below $90m is much higher. Statistical inference allows us to compute the maximum drawdown that the same investment may experience within its horizon with equal probability. Just for the sake of illustration, the within-horizon value-at-risk of this same investment could be $30m. And, of course, these value-at-risk models do not tell us at what happens in those five cases out of a hundred when the outcome is beyond the band.

Additionally, the benefit of estimating risk across multiple time horizons is not just mathematical. Having interim and final figures provides a frame to everyone involved, both for risk professionals and others, like board directors, so that they expect the pathway to be bumpy even if they are headed to the right destination. Managing expectations to be realistic is an essential long-term behavior: it reduces surprises, which in turn reduces short-term reactions.

The COVID-19 pandemic presents an extremely difficult short-term crisis, but nearly all long-term investors will have an investment horizon beyond this pandemic. Focusing on that horizon will help us use our risk models better; and will ultimately help us perform better too.

Yet, even with these improvements in how we use risk statistics, human behavior underlies financial markets, and no unified set of statistical assumptions encompasses these behaviors, much less the ways that they interact, particularly in times of crisis.

In these times, a long-term investor will understand that the world has moved outside of statistical probability and that human behavior will affect both our response to the pandemic and the risk and return that financial markets produce. Long-term investors recognize that this crisis presents a leadership opportunity to contribute to outcomes that fulfill our organizations purposes.

Sarah K. Williamson and Matthew Leatherman are CEO and Research Director at FCLTGlobal, respectively. FCLTGlobal isa non-profit organization that develops research and tools that encourage long-term investing. Its membership is comprised ofglobalasset owners, asset managers,andcompanies that play a leading role inrebalancingcapital marketsfor sustainable growth.Further research and practical toolkits are available atwww.fcltglobal.org.

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Risk management in a time of crisis - Investment Magazine

Human Behavior

Rush Limbaugh: I hope that there’s some governor that grows so fed up with it, that he just reopens – Media Matters for America

Citation From the April 14, 2020, edition of Premiere NetworksThe Rush Limbaugh Show

RUSH LIMBAUGH (HOST): Folks, Im going to tell you something, right here and right now. I am suspicious of anybody who doesnt want this economy reopened. It ought to be the overriding objective of everybody including the health people. Even if its just a desire, even if it is something they dont think that can happen, it ought to be a desire.

When I see people, when I detect people who are not interested in this Im sorry, I cant help it, I get suspicious. It ought to be the overriding desire of everybody. This is not sustainable. We are destroying the economy. Every day that its shut down, were destroying it every day. We did it to ourselves.

And I the idea that there are people who think this could go on, like this, with no end in sight? Thats absurd. Its absurd on its face. Everything happening today is in violation of basic human nature everything. We dont shut down for illness, ever. We never have shut down for illness before. Weve never shut down for mass death. Weve never done it before. Weve never shut down on the projection of mass death. Weve never done it before.

And, Im sorry, when I encounter but Im not talking just about Dr. Fauci anybody. I know that the Democrat Party wants to keep this shutdown for as long as they can, as a political objective. They know how damaging this is, to the president. They know how damaging it potentially is, when the election comes up.

But throw the election out, just forget politics for a moment. Anybody not interested in doing whatever has to be done to get the economy going, to get people living their dreams again anybody who is not focused on that, is automatically suspicious to me. Because I cant relate to it, I cant fathom it.

To me, we are way beyond this making sense. I understand why we had to do it. But even then, weve never done it before never. And I just Im having daily, increasing trouble with this.

And now more and more people are talking about it, which is giving the impression that it is finally imminent, and somehow this May 1st date has popped up. And now that it has, here comes the crowd that doesnt want it to happen.

Do you realize how against our nature this whole thing is? Forget Americans human beings. Human beings are not designed were not created, designed, to sit around.

But, Rush, but Rush. Theres a killer, thats invisible out there, it could kill anybody.

Death is present every day. Death surrounds us. Death, sadly, is part of the human existence.

No, Im not imagining questions here Im not suggesting we shouldnt have done that. I'm not even going to go there, because thats pointless. We did it. That debates going to happen. Mark my words, that debates going to happen.

You know, the debate is going to center around the computer models. Because the computer models combined with the great thinking of American politicians is what shut us down. Computer models, which havent been right yet. They havent even been close to being right yet.

Im hoping that theres a state somewhere out there that grows so fed up with this some governor that grows so fed up with it, that he just reopens. Something is going to have to happen, something has got to give. This just is not sustainable, in any which way you wish to categorize it.

And I do not believe that it represents greed or selfishness, at all, to be desirous of people earning a living again, and of people producing things, and the American economy.

What is the American economy? Its not a complicated thing. Its people getting up and living their lives creating commerce amongst themselves. The American economy is virtually everything human behavior takes human behavior engages in. You are engaging in the economy when you go to the gym, when you go to yoga class, youre engaging in the economy. When you walk down the street, youre engaging in the economy, because you had to go buy the clothes youre wearing in order to walk down the street, and not get arrested for nudity.

Virtually everything you do is economic and the more of it, the better the more of it, the more prosperous everybody is.

And it boggles my mind that there are people in responsible positions of power, who do not seem to have it reopening as an objective. I can understand medical people being worried. I can understand that there may not be time. I can understand medical people saying, Its going to be really, really risky.

But the idea that we shouldnt do it? Sorry, doesnt compute. Thats not workable. Thats not doable. Not reopening is not doable.

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Rush Limbaugh: I hope that there's some governor that grows so fed up with it, that he just reopens - Media Matters for America

Human Behavior

Top 5 Reasons Gamification is Effective in Web Design – SymbianOne

Web design is an area becoming more and more competitive by the day. The things that worked several months ago can easily become history, with a blink of an eye. It is an ever-evolving industry that always seeks effective and confident ways to get the attention of Internet users. New and innovative methods help website owners lead users down their sales funnels in evolving and effective ways.

And while trends change over time, the professionals working in these areas seem to do well at taking notice and taking action before the new developments transform from novelties into necessities. Some of these new trends come from other areas of design and niches, which seem entirely distinct from web design. For example, some specialists explore and even utilize cognitive psychology and neurobiology in website design. And yet there is only one industry today that truly caters to some of the most innate human needs and wants while entertaining them. This industry hit a stunning $120 billion of revenue in 2019. Yes, you guessed it were talking about the video game industry. Though the industry has been through its highs and lows, today it is one of the most prominent and rapidly growing industries in the world.

It should come as no surprise that at some point, web designers decided to incorporate some gaming elements into websites. At first, it was a gamble. But time proved these chances correct the results were quite encouraging. Gamification works, but only if gaming elements are used properly, consider users behavior, goals, and the niche a particular site belongs to. If you have a company website that isnt successfully driving new leads and converting them to customers, then gamifying your sites design might be a helpful solution. But, if you still dont have a website, you might want to consider adding game elements at the very beginning.

If your company isnt a web design company, finding a team of reliable specialists that can take care of your companys site development and launch is critical to the success of your business. Incredible web design agencies exist in every niche imaginable, so finding the one that can create a site that reflects your brand and matches your budget shouldnt be a problem. The better your website addresses the needs and wants of your audience, the higher the chances it will generate new leads, customers, and income. Sit down with your web design agency in San Francisco to discuss the ways to proactively and effectively gamify your future or existing website.

But, before this all happens, you should get at least some idea of how and why gamification works in web design and how it can help you get more leads and, therefore, customers.

When a visitor gets to your website, more often than not, they just want to get from point A to point B. Leading potential clients towards your desired goal is a part of the user journey. According to simple psychology, people dont like to be made or forced to go anywhere. Everyone wants to be the masters of their destiny. This means its important to make users feel like theyre in the driving seat. Always. This is the heart and soul of gamification. Think about it like the website version of a choose your adventure book.

Online courses like Codecademy and Udemy, do this very well they have a wide range of courses on all kinds of topics. Their gamified systems let users have control at any moment on their platforms. They can choose lectures like game levels; they can even click next lecture whenever they want. It might sound simple, but humans get a kick out of making their own choices.

Once again, this is simple psychology. People like to know where they are going. They like to know where they are in the process. Otherwise, users remain in the dark and become increasingly wary.

When players play Mario, World of Warcraft, and Zelda, theres a clear and simple reason why they have a map! Taking this type of mapping system and incorporating it into various aspects of your website can have drastically positive consequences. Even something as simple as a progress bar can work as a map for your site visitors. Whatever it is that allows them to know where they are in the process of what they are doing is a useful tool. Your potential customers always will want to know how far theyve gone and how far theyve got to go. If you can include achievement milestones along the way. This way, youll break up the journey and make it feel more manageable. Once again, this improves user experience.

When you are training a dog, you reward it with treats. The same happens when it behaves well. It keeps behaving well because it gets its rewards. Although humans are far more complex than this, essentially, the same thing happens when you play a game. When you finish a level, you receive a reward a power-up or a new character, for instance. So you keep doing it again and again. This pattern reinforces a habit of behavior.

Gamified sites do the same thing. Facebook is particularly good at doing this. It is fantastic at incorporating subtle gamification. For instance, when you post an image or status, you get rewarded with reactions (likes, wows, etc.). You get a psychological reward from Facebook. So, you repeat your actions. Facebook is the real winner that keeps user engagement and user numbers high. Rewarding users at every stage of their journey reinforces what you need them to do and hopefully keeps your websites traffic high.

Achievement is one of the strongest psychological driving factors in human behavior. Everything humans do; they do to achieve something. Your website visitors are going to try to achieve something. That could be buying a book, getting fit, learning code, or managing money.

If you can make your prospects feel like they have achieved something, they are going to return. Something like simple praise for a completed task helps create a milestone this is an achievement. We all understand real achievements, like getting fit, or learning a skill, take considerable time and effort. Thus, its important that you break the process down and create turn achievement itself into manageable steps and intervals. This keeps people coming back for more.

By nature, humans are competitive. Most people want to push themselves further and harder. By including previous records and personal bests to your site, you might persuade your audience to come back and try to improve. Show people their statistics, and they will try to beat it on almost any occasion.

It can be quite difficult keeping your target audience engaged with your company website. This reality alone should make you seriously consider gamification. Of course, you dont have to turn your website that has all the relevant information about your company, products, services, and other things into a game. But, adding just a tiny pinch of gaming can drastically improve the user experience.

You should connect your marketing team with that of the web design agency youve hired to make sure that all gaming elements reflect the way your brand takes care of your customers. You want to make certain that the site visitors will value your content and will enjoy surfing it when looking for information, deals, and more. Gamification in web design is a quite effective strategy you just always have to make sure youre doing it the right way.

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Top 5 Reasons Gamification is Effective in Web Design - SymbianOne