Covid-19 – A Case Study in the Power of Fear

I have a thought experiment for you. Money Coin Price Work Job Struggle Balance Rich Man 300x300

Walter is a very successful, very wealthy, self-made millionaire.

His track record, over many years has been incredible – every time he invests money, 99% of the time he succeeds in making himself and his investors more money.

Due to his 99% success rate, everyone wants to be part of Walter’s investment opportunities.

Walter is a close friend of yours over many, many years.

You’ve done 100 deals with Walter over those years.

Almost every time you have invested money with Walter, he’s succeeded in making you more money.

Only once, did you ever lose money, investing with Walter.

And, thanks to Walter, you’ve made millions over the many years doing deals with him, due to his 99% success rate.

Walter approaches you with another deal and wants to know if you would be interested in investing.

You give it some thought, talk it over with your spouse, and agree to invest money in Walter’s new deal, fully aware that there is a 1% risk that you could lose money.

In your mind, the odds are greatly in your favour – Walter succeeds 99% of the time and only fails, 1% of the time.

Knowing what you know about Walter’s success rate, if Walter approached you and offered you an opportunity to invest with him, would you say yes?

Or, would you say no, because of the 1% risk that you could lose money?

Does that 1% make you afraid to invest your money with Walter?

As more data comes in, the math on Covid-19 is becoming clearer.

Covid-19 is highly contagious.

About 20% who come into contact with the virus, become infected.

This is significantly more than twice the 8% contagion rate of the average flu.

And the percentage of those who die, as a result of becoming infected with Covid-19, while continuing to drop at this writing, is still close to 1%.

About 1 out of every 100 individuals who is infected with Covid-19, will die.

Fear Fobo Decision

So, you have a 1% chance of dying from Covid-19.

And yet, that 1% has caused the entire world to shut down, in fear of contracting Covid-19 and dying.

Damn right! You say.

I’m afraid of that 1% chance of dying.

Do you drive a car?

Did you know that you have a 0.9% of dying in a car accident?

Why doesn’t the fear of dying in a car accident stop everyone from driving a car?

When you give into fear, you allow fear to control you.

Successful people do not allow fear to control their behaviour, thinking and decision-making.

They do not give fear even a second to take root in their mind.

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Tom Corley

About

Tom is a CPA, CFP and heads one of the top financial firms in New Jersey. For 5 years, Tom observed and documented the daily activities of wealthy people and people living in poverty and his research he identified over 200 daily activities that separated the “haves” from the “have nots” which culminated in his #1 bestselling book, Rich Habits – The Daily Success Habits of Wealthy Individuals. Visit the website: www.richhabits.net


'Covid-19 – A Case Study in the Power of Fear' have 2 comments

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    July 2, 2020 Ben

    The flaw in this thought experiment is that dying is not the same as losing money. The Australian Risk management standard requires that risk is not just assessed in terms of probability (the % chance of it happening) but is also quantified in terms of the quantity of the potential loss. The latter is usually equated to dollars and multiplied by the chance….in terms of death, a life lost prevents one from investing for ever…..so the risk is huge even though the % chance is small. The car accident analogy is better, but also fails to be a good analogy because 1. each driver can drive safely and mitigate the risk, whereas each individual in society has little ability to mitigate a Covid 19 death, except by being a hermit, and 2. The cost of mitigating a car death is a lot lower than mitigating Covid 19 deaths, and 3. If you do not mitigate car deaths the effect on the broader economy is minor, whereas if you do not mitigate Covid 19 deaths, then the overall economy will eventually be totally wrecked, as we are seeing in the UK and the USA. Therefore if one is saying we should balance Covid 19 deaths with keeping the economy going, we are actually thinking a fallacy. In reality the economy is better served in the long run by hitting Covid 19 hard and fast as early as possible- in fact we should have closed Australian borders well ahead of pandemic status being declared. Fear has many sources. Firstly we feared Covid 19 because of the unknowns and our fear of death. Now we are fearing the down turn in the economy because of the first fear, and some are arguing against shut downs, which they fear, by using the idea that shutdowns are an over reaction to a small risk. The risk is not small as described above, and therefore such an argument is fallacious.

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