Be Careful of Mental Shortcuts - Part I
Don’t ask me why certain statistics get stuck in my head. As you know, I’m a numbers guy at heart. And I love numbers. So they tend to stick.
Late this past January, two numbers I saw quoted various times on social media and financial news websites made me pause.
The first dealt with the UK and other Covid strains that may be more contagious and may be more deadly than COVID-19. Over and over, people were claiming that this would be the dominant strain by March.
The second was a statement by the CDC in Atlanta. In it, a spokesperson said that we could face 100,000 or more Covid deaths in the US in the month of February. (Mercury News, 1/21/21)
You may remember both of these reports. They were fairly sensational and very specific.
I realized there was no way that either of these predictions was going to come true. And that the people making these bold statements had taken dangerous shortcuts to come to an erroneous conclusion.
Let’s take the CDC statement first. I’ll set the stage. It’s late January. We’ve had a bad winter thus far with Covid cases. We are setting records of the numbers of positive cases as well as Covid deaths.
We’ve discovered that most people contract COVID-19 through intimate contact, not at the grocery store. And November and December are full of times when we are gathering together - despite governmental pleas to the contrary.
We also know that it takes weeks for a severe Covid patient to die. It isn’t an overnight occurrence. It’s literally weeks, if not months of hospitalization. It is a horrible time for both the patient and their family.
In late January, the CDC forecasted that deaths from Coronavirus are going to be worse in February than they were in January. Even though our holiday season was already a month past. (And there were three less days in February.)
Why did they say that??? Where did they go wrong?
Let me go back a little bit further than January. I’d like to take you back to 1980. OK, I guess that’s a lot further back.
I’ve told this story before, so I’ll keep it short. It’s 1980. I’m 11 years old and I am sitting with my mother in Dr. Schreiber’s waiting room. I pick up a science magazine - I forget which one. As with most magazines, there are short blurb articles before you reach the main articles. These blurbs are usually 2-3 paragraphs.
This one blurb caught my attention. That year, Africa saw a dramatic uptick in locust swarms. Locusts. Like biblical plague-type stuff. In addition, here in the Northeast, we were seeing an explosion of Gypsy Moth caterpillars. Also very plague-like. Gosh, I hate those things.
So that sets the stage. Lots of bugs. Way too many bugs!
This 3-paragraph article was quoting a scientist that claimed that if the current rate of insect reproduction continued, the entire earth would be covered in insects within a few short years.
To quote 11 year old, number-obsessed Dennis, “that’s stupid!” You can’t just assume that a chart will continue in its original track forever. Nature isn’t like that. External changes will alter the data. (Which is exactly what happened in Africa and the Northeast. Overpopulation of these insects led to massive die-offs and brought everything back into balance.)
The CDC made the same mistake. They took a graph of the increase in daily deaths and extrapolated it out as an ever-increasing line for months without inquiring as to the cause of this latest wave.
When they counted back how many deaths the graph should show for February, it amounted to 100,000 or more. This despite knowing that the situation had already changed and deaths from Covid were what is called a “trailing indicator.”
In the end, there were 66,000 deaths from coronavirus in February. This is still a massive toll. But it missed the CDC expert mark by more than a third! And daily deaths continue to decline as we move further from December.
And that brings us to the second statistic - that by March (right now), mutated strains of COVID-19 would be the most prevalent in the US. I saw this touted on many websites and social media posts 6-8 weeks ago.
So what happened?
Again, it was a bad interpretation of good science. Shortcuts.
If you’re trying to model the spread of a new virus, you would be inclined to use a recent example of a similar virus. That’s exactly what happened here. Scientists used our experience last March as a model to show how these new strains of Covid can spread.
Yet we’ve changed how we live dramatically in the last year. We keep our distance. We wear masks where appropriate. We minimize our time out-and-about.
Instead of putting in critical-thinking skills, scientists decided to use an obsolete model to predict the spread of a new strain of the virus. Shortcuts were used.
Many times, taking shortcuts like this can afford us a faster conclusion. It’s like substituting bread flour for all-purpose flour in a recipe. It’ll likely turn out just fine because it has most of the same properties.
But if you aren’t paying attention, you could end up adding cornstarch to the recipe instead of all-purpose flour. It looks similar but has very different properties. And will not produce the desired results.
This isn’t applicable just in cooking or pandemics. We sometimes do the same thing with our financial lives.
“My co-worker, Joe is retiring. And he’s the same age as me. I should be able to retire, too.”
“I heard on a podcast that this is a good investment. I’m going to buy some.”
“Mortgage rates have dropped. That means it’s time for me to refinance.”
Maybe Joe has a similar financial situation to yours. And maybe he has a professional advisor who calculated his retirement numbers. And maybe Joe’s needs in retirement are similar to yours. Or maybe not any or all of those. Maybe you’re just hoping Joe is smarter than you and you’ll go along with what he’s doing.
Maybe that podcast is right. Maybe it is a great investment. But maybe this isn’t the right time or risk profile for you. Maybe you’re going to need that money before you can wait for it to rise in value. Or maybe the podcaster has a vested financial interest in telling you that it’s a great opportunity.
And maybe mortgage rates are down. But are they down enough to save you money or will all of your savings get eaten up by closing costs on a new loan????
Shortcuts can help. But with complex problems, be it predicting the growth of a pandemic or sometimes as seemingly simple as managing your finances, shortcuts can get you in trouble.
It isn’t exciting to examine the data. It’s much more fun to make a conclusion based on a shortcut and move on. And in the process, you might pay way more than necessary on your mortgage or in income taxes. Or you won’t have enough money to retire successfully. It’s vital you examine the data.
Know your numbers! Just like the CDC and the other scientists should have done. If you know your numbers, you can make better decisions for your finances and your future.
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This blog is the opinion of Successful Money Strategies, Inc. and is provided for informational purposes only and is not intended to provide any investment advice or service. Statistics and other figures are accurate at the time of original publishing. Any advice herein should not be acted upon without obtaining specific advice from a licensed professional regarding the readers own situation or concerns. Always count your change.