Smart Thinking, Lockdown and COVID-19: Implications for Public Policy

Abstract

The response to COVID-19 has been overwhelmingly to lockdown much the world’s economies in order to minimize death rates as well as the immediate negative effects of COVID-19. I argue that such policy is too often de-contextualized as it ignores policy externalities, assumes death rate calculations are appropriately accurate and, and as well, assumes focusing on direct Covid-19 effects to maximize human welfare is appropriate. As a result of this approach current policy can be misdirected and with highly negative effects on human welfare. Moreover, such policies can inadvertently result in not minimizing death rates (incorporating externalities) at all, especially in the long run. Such misdirected and sub-optimal policy is a product of policy makers using inappropriate mental models which are lacking in a number of key areas; the failure to take a more comprehensive macro perspective to address the virus, using bad heuristics or decision-making tools, relatedly not recognizing the differential effects of the virus, and adopting herding strategy (follow-the-leader) when developing policy. Improving the decision-making environment, inclusive of providing more comprehensive governance and improving mental models could have lockdowns throughout the world thus yielding much higher levels of human welfare.

Keywords: COVID-19, Bounded Rationality, Herding, Poor Heuristics, Lockdown, Public Policy

JEL Classification: B41, D00, D70, E70, I18