Fear for Sale

This entry by Patri Friedman is old in Internet terms (i.e. one whole month), but it’s timeless and interesting. I can’t do it justice without posting it all, I think, so here it is:

Among my many contrarian beliefs, I don’t believe in pandemics. Not that they haven’t happened, or that they can’t happen, but that incipient pandemics reported by the CDC, WHO, and the media are fearmongering and blown way out of proportion. SARS, bird flu, and swine flu are the most recent examples.

Here is the problem. The CDC and WHO exist to fight global health issues. Having them report on the dangers of pandemics is like asking the American Association of Sleep Doctors whether people are getting enough sleep. They have a huge incentive to find danger. Combined with media sensationalism, the result is a lot of bullshit.

In typical govt agency fashion, the approach is sneakily win-win. If the pandemic materializes, it is blamed on nature and inadequate funding – the agencies did the best they could. Surely you can’t short them in the budget now! If it doesn’t materialize, it was due to their noble efforts, and they deserve at least cost of living raises. Either way, more supposed threats gives more opportunities for wins.

Its too bad that prediction markets don’t seem to work in practice (only a narrow set of topics produces the trader interest required for liquidity and good estimates), because conditional policy markets (“how many people will die of the flu if the CDC budget is $XXM next year?”) are a theoretically great answer. Funding these agencies like traditional nonprofits, accountable to their donors, rather than via politicians spending other people’s money, would be a step in the right direction.

Every word is relevant to the way WHO, CDC, and the media treat circumcision and HIV. If we don’t circumcise every male from birth, 25 trillion people will become infected with HIV next year. Because it’s the foreskin, not unsafe sex, that leads to HIV transmission. No matter what, though, know that the data will tell the story the organizations want to tell.

I find the prediction market idea fascinating, too. In this context, I’d take a large short position that HIV rates will decrease as predicted among the newly circumcised men and children in Africa.