Little things happen in a hurricane. Example: When the wind is blowing counterclockwise on the Gulf of Mexico coast, it pushes the waterline away from the shore. Manatees get stranded in the mud (cbsnews.com/news/hurricane-irma-tampa-bay-water-levels-strands-manatees/).
People are more mobile than manatees. One wonders, however, about their relative intelligence. Some people in Tampa walked out, following the receding waterline. What were they thinking? That the water wouldn’t return, and suddenly? Police had to save them from tragedy (tampabay.com/news/weather/hurricanes/hurricane-irma-is-so-strong-its-pulling-water-from-tampa-bays-shores/2336958).
Big things happen, too, like millions of folks without power, fearing tornadoes, storing water, needing food, seeking shelter, finding gasoline. Yes, big things also happen.
So hurricanes become the obsession of lots of people. Even the ardent tennis fans were flipping between the Open and the Weather Channel, if they hadn’t lost their electric power.
The news flow intensifies in parallel with storm size and intensity. Manatees ignore news; they can only wait patiently for the return of their normal environment or for rescue by well-meaning bio-citizens.
Modern humans are not designed for patience. Proof is available on blog sites of the power companies busily repairing a wounded system. Social media instantly expands the experience. Some believe it is social media pressure that has changed traditional television and thus added to the intensity.
Behavior patterns of humans are diverse, and each person’s forecast or fear reaction is unique. Has social media fattened the tails of this distribution of human behavior?
Economics teaches that the averaging of those forecasts is likely to generate a more accurate prediction than relying on any single one of them. Yet each of us is motivated by our conclusions – a single data point that is not likely to be the average.
Economics also teaches that mean-reverting tendencies do not guarantee that the variable in question is going to stay at the mean for long. As Irma reminds us, we must acknowledge the volatility of forecasts and of outcomes; failure to do so can be perilous as the Florida Keys now attest.
Irma was a mean-shifting experience for some folks, who will now incorporate the experience into their decision-making. For a while, some people will beef up their preparedness. This pattern of reacting to the most recent event will drive many personal and economic decisions. My colleague, Bob Eisenbeis, wrote about these economics yesterday.
In economics we use models and techniques that adjust for experience, just as weather forecasters update their models in the wake of large hurricanes. Those adjustments will now be made by serious market agents.
Some things don’t need models. Only a few walked out onto the Tampa mud flats. Most figured out that this was a bad idea, because they could come up with a reliable prediction on their own that the water would return. They had incorporated life experience in their models. Those who actually walked out in the mud engaged in behavior that psychologists might labor to explain.