3 Key Lessons for Managing a Crisis

KEY POINTS

• While every crisis is unique, there are some important lessons we should have learned after the last global crisis to help us cope with the next.
• When we promote algorithms to rule-makers, we pay far less attention to the critical variables that can’t be included in these calculations.
• We need to be mindful of the implementation gaps separating good intentions from their effective application.
• Hubris that governments can effectively eliminate risk leads some to underestimate the severity of events unfolding in front of us in real-time.

Over the next few weeks, most of the world will finally be lifting COVID restrictions. In many ways, the current COVID-19 crisis has presented governments, businesses, and regular folks across the world with unprecedented challenges.

While every crisis is unique, there are still some important general lessons we all should have learned after the 2008 global financial crisis to help us cope with the next one.

While some biases can be helpful, these three did not serve us well, both in the past or during our current crisis. So let’s learn from the experience to better prepare and improve our resiliency for the near future.

1. Algorithms are only as strong as the thinking behind them.

The first mistake is the continued knee-jerk reliance on complex algorithmic models to avoid difficult decision-making. In response to intense criticism, the CDC released a report on January 14 justifying some of their more problematic decisions by placing responsibility for judgment on the algorithm they are using.

Blaming the algorithms was not a good enough response to the financial crisis, and it’s not good enough now.

Just as financial industry professionals over-relied on their technical mastery of complex algorithmic financial modeling tools in the lead-up to the ’08 crisis, public health officers are drawing on their functional training and relying on tools to assess epidemiological risk.

As governments promote algorithms to rule-makers, decision-makers pay far less attention to the variables that can’t be included in these calculations.

But the long-term health of our society depends more on these incalculable metrics, like the harm brought on children due to mask mandates and school closures, than the calculable variables of epidemiological spread and hospital strain.

2. Good intentions shouldn’t replace successful outcomes.

The second mistake is a continued bias towards social virtue signalling with limited regard to the effectiveness of the action taken.

Thoughtful people supported mask mandates that encouraged the wearing of masks, some of which were ineffective because masking signals in public spaces that the wearer cares about the health and wellbeing of others.

This sort of response is typified by Dr. Joshua Barocas, an infectious diseases physician at Boston Medical Center, who stated: “I think… wearing a mask can just be a symbol.

It can show people that you are committed to the cause… committed to protecting other people’s lives and their children’s lives and their families lives.”

Are masks a reliable signal of this type of communitarianism and compassion?

As a strategy professor, signaling theory is something I know a little bit about. Signalling occurs in situations where groups of folks have access to different information and want to mitigate the information asymmetry.

Masking is not a reliable signal for health or compassion, especially when mandated by law. Dishonest signals pay. Wearing a mask cannot be reasonably correlated with the unobservable qualities of good health or care for the community.

We need to be mindful of the implementation gaps separating good intentions from their effective application. A desire to signal good intentions can often lead to ignoring increasingly bad outcomes.

Many of us go to great pains to avoid criticizing those we see as doing noble work. We want to signal that we are all in this together, part of the same team, committed to a healthy society.

But an uncritical stance is dangerous. Looking back to the ’08 crisis and those writing in the Fannie Mae sponsored journal, we find evidence that many within the institution believed growing the subprime market was the path to extending the American Dream to those who have historically been excluded.

This was a noble ambition, and who would want to signal opposition?

But as we now know, those working for Fannie Mae pushed for actions that brought the dream of homeownership crashing down for vulnerable Americans. In many ways, it could be argued that what Fannie Mae was in 2008, the CDC is now.

3. Risk is an ever-present part of life.

The third mistake is a hopeful bias leading many to believe that we can effectively eliminate risk. In the years leading up to the ’08 crisis, influential decision-makers increasingly expressed the belief that policymakers had created a new and less volatile financial world.

This hubris led many to underestimate the events that were unfolding in front of them in real-time.

The same thing seemed to be occurring in the U.S. as this crisis started, with experts hesitant to see the failures of existing government action.

When asked to reflect on their actions a decade after the financial crisis, former Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson made no apologies, stating “we did some things to fix the financial system which is very hard to explain because they are objectionable things… in the United States of America, there’s a fundamental sense of fairness that the American people have… You don’t want to reward the arsonist.” Yet that’s exactly what they did, and the U.S. is paying the price with a very polarized public.

As we plan for the endgame out of the current crisis, we need to be wary of our biases that elevate trust in algorithms, virtue signals, and government promise to eliminate risk. In their stead, we need to privilege long-term thinking, open debate, and trade-offs that are aligned with societal values.