We are privileged. We live in a rich and well educated world. We can afford to think about passive income strategies, cryptocurrency trading and decentralized finance. At the moment Bitcoin hodlers are happy about the BTC price gaining new heights. However, meanwhile we are facing the biggest worldwide pandemic since the Spanish Flu at the beginning of the 20th century. 

Covid-19 takes our wellfare societies off guard. Although the best technologies and the most recent scientific knowledge help us to fight the virus - i'm sure there will be a vaccine soon, hopefully at the beginning of 2021 - the virus teaches us a very painful lesson: Our modern societies have lost the ability to cope with fatal epidemics. 

In the 18th century men and women on average died with the age of 31. In those days people could die from an infected flesh wound and from diseases such as plague, typhus, cholera etc. People feared to become ill. They knew that remedies were not available and that they would eventually die. Therefore uncertainty and fear were part of every day people's life. 

A choice with two negative outcomes 

Of course medicine, education and science have developed further. In our societies we don't have to be afraid of dying from banal flesh wounds or diseases. In comparison to people's life a couple of centuries ago we have not only the luxury to live longer but to enjoy our lifes. Going out, going to concerts, meeting with friends, partying etc. - all the things we do in our free time to enjoy ourselves are normal today. And of course, who things about illness and disease while sitting in a restaurant or in the cinema? 

Covid-19 reminds us that we have to learn to live with epidemics again. We are forced to organize our every day life new. If we don't want to get infected, we have to think about reducing social contacts. At the moment, we can't organize meetings with friends, events etc. without thinking about the risk of Covid-19 infections. To live with the virus means to take decisions under uncertainty. No one nows if a group meeting with friends can be potentially dangerous or not. We don't know, if it is better to visit close friends or family members or to stay at home. But we also don't want to suffer from loneliness. Furthermore the governments try to protect (especially vulnerable) people from the virus by implementing restrictions or lockdowns. But noone can stop people from being social human beings. Noone is keen to shut down the economy either. It is a dilemma. We are confronted with two bad choices - either to give up huge parts of our normal lifes or risking the further spread of the virus and more casualties.

Decisions under uncertainty - prospect theory 

In general, it is hard to take a profound decision here. We tend to underestimate the virus or we are biased by unscientific media coverage and diverse opinions about how to deal with the pandemic. Here we have a situation which is best described by Daniel Kahneman's and Amos Tversky's concept of prospect theory. 

First introduced in Tversky and Kahneman's paper on prospect theory, the concept of loss aversion is one of the oldest and most robust findings in behavioural science. Loss aversion refers to the fact that, when making judgements, prospective losses are felt more negatively than equivalent prospective gains, which are felt positively. Tversky and Kahneman found that individuals were more willing to take greater risks to avoid certain loss, but would avoid risk if the alternative was an equivalent certain gain. Small changes in the choice architecture such as the framing of loss have been shown to influence judgements

During this pandemic the perception of loss aversion differs. Younger people might be less afraid from getting infected than older people. Therefore younger people might weighten the risk of getting infected differently than older people. Kahneman and Tversky found out that when individuals make decisions under uncertainty they are influenced by the weight of their judgement and by biased, subjective information (one own's perception of the situation which tend to be always over- or underestimated). In the end, when individuals make decisions under uncertainty, they tend to behave irrational.

This saliency bias leads to probability neglect, disaster myopia, and a naive optimism that if an outbreak of an infectious disease does occur, we would have the governmental, medical or technological solutions to deal with it. When an outbreak occurs, the risks of an epidemic suddenly become very salient in people’s minds and they may react to it with a degree of fear that is not proportionate to the actual risks or harms of the disease. Whereas people are complacent about, and even ignore, the warnings of health authorities at the start of every flu season, their mental energies are now excessively focused on the most salient issue of the day.

Overcoming the bias leeds to better decisions 

So prospect theory helps us to understand the pandemic and to cope with uncertainty. It should be used by politicians to get a better understanding of the situation and people's needs during the pandemic. Overcoming decision biases can help to overcome worries and fears and it can help to come back to normality even in times of crisis.