With so many countries vying for the dubious honor of “Sick man of Europe,” ConvergEx's Nic Colas looks at some of the academic literature related to how doctors make sound diagnostic decisions. The medical profession suffers from many of the challenges we all face in making sound judgments, fighting off inherent biases and shortcuts to make consistent decisions based on the facts. The one difference is that medical professionals must often make their decisions “On the fly,” with life or death often in the balance. In contrast, European policymakers have, thus far, had the luxury of time in addressing the region’s challenges. But if the pace of crisis picks up in the coming months, the ECB/IMF as well as other monetary and fiscal policy bodies will have to move more like an army field surgeon than careful diagnostician.
Back in college, I had several friends who studied colonial American life as a way to hone their archaeological field work skills. They would spend their summers digging up old farmsteads or commercial buildings or even cemeteries before the land was put to use in other, more modern applications. Essentially, if someone wanted to build a shopping mall in Rhode Island they would pay the local university to do a site analysis and see if there was anything interesting under the ground. If there was, they had a few weeks to unearth it before the bulldozers moved in and the concrete was poured. My friends worked on these teams, got a lot of experience in solid archaeological field practice and usually developed a pretty good tan from working outdoors for the summer.
There was, however, the odd grisly discovery, such as when they found an old colonial graveyard and had to excavate and remove the 200+ year old coffins and their contents. Wooden boxes don’t last that long in wet climates, so most of them had at least partially disintegrated. On the plus side, that meant that the bodies had long ago turned to simple white bones. But the bad news was that occasionally – not very often, but enough to notice – my friends would come across coffin lids that appeared to have scratch marks on the insides. As if the person had been buried before they were actually dead. I thoughts this was all a joke, but over the years I have heard enough such stories to allow that perhaps they are more than just the imagination of college undergrads.
The logic behind such an unspeakable horror is that medical science didn’t advance very much until the 1800s, and what we know today as a coma could have easily been misdiagnosed at the time as outright death. And without the custom of embalming, the unlucky patient would find themselves quickly dispatched to the grave. Only to awaken later.
I bring this up because I have been thinking about the many similarities between the challenges faced by doctors (to cure the sick) and monetary and fiscal policymakers (to alleviate the pain and suffering of the Financial Crisis). A quick look at the medical literature on the topic of sound diagnostic decision making only cemented the comparison in my mind.
One piece from the National Institutes of Health National Library has a checklist of “Five pitfalls in decisions about diagnosing and prescribing” that seems eerily like sound advice for a central banker rather than an M.D. You can see the whole analysis here: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC555888/.
A quick review of the biases mentioned in the article follows:
- The Representative Heuristic. Say you are told that a group of 100 people includes 70 accountants and 30 social media entrepreneurs. When asked to guess the occupation of an unspecified member of the group who lives in San Francisco, has a beard, and skateboards to work, you’d probably say it was someone from the social media cohort. You would be going against the fact that fully 70% of the group are accountants because of some simple stereotyping. Bad idea. In medicine, the outcome of this mental shortcut is diagnosing someone based purely around the observed symptoms rather than the chance of that explanation being accurate in the first place. The New Yorker has a great case study of this here: http://www.newyorker.com/reporting/2007/01/29/070129fa_fact_groopman.
- The Availability Heuristic. Doctors come to conclusions about a diagnosis based in part on what they have seen or heard recently. One study showed that despite the fact that opioid-based pain relievers are nowhere near as addictive as the popular press would have us believe, doctors tend to under prescribe them and therefore undertreat pain.
- Overconfidence. Studies mentioned in the NIH article state that doctors overestimate their abilities much as people generally think they are generally “Above average” at most basic tasks. One specific study mentioned that primary care doctors and oncologists rate their ability to manage pain quite highly, despite the fact that they actually had “serious shortcomings” in their actual knowledge on the topic.
- Confirmatory bias. This is the tendency to look for supporting data that fits your view of a given problem or question, and dismiss that which challenges your beliefs. The article mentions that the process of taking medical histories is especially susceptible to this bias, with doctors only asking for questions that support their already-set presumptions about what is wrong.
- Illusory correlation. Take, for example, your doctor’s exhortation to “Eat less red meat!” You ask “Why?” and your MD points you to a raft of studies that shows that people in the top quintile of red meat consumption have a 20 percent greater risk of dying than those in the bottom quintile. Should you lay off the steaks? Maybe. But maybe not. What if red meat eating people, by coincidence, smoke more or have more stressful jobs? That might explain the “Red Meat Kills” message more correctly, no? See here for a great review of this phenomenon: http://garytaubes.com/2012/03/science-pseudoscience-nutritional-epidemi….
To pivot the topic to economic policymaking from medical diagnostics, think of the situation in Europe at the moment. The doctors are all the senior policymakers whose mandate it is to “Cure” Europe of its problems and return the patient to good health. Aside from a few spasms during the Greek debt crisis last year, it has been a slow process between doctor and subject. The kindly MD says “Lose some weight and exercise more, or you’ll die young!” The patient says they will promise to try. Tomorrow. After all, the heuristics I outlined above also reside in the one being examined. Overconfidence, especially. But when does this all step over the line into economic “Malpractice?”
A few point of reference back to the medical world:
- Most malpractice cases in the U.S. are made against primary care physicians regarding care given in their own offices.
- The length of time in malpractice cases between when symptoms first arise and a patient was (finally) properly diagnosed is just over 300 days.
- The top five most misdiagnosed diseases are Breast Cancer, Colorectal Cancer, Infections, Skin Cancer and Bone Fractures.
- About 60% of all malpractice cases relate to failed cancer diagnoses and 12% of all cancer is initially misdiagnosed.
- For more, see here: http://www.ispub.com/journal/the-internet-journal-of-family-practice/vo….
The ongoing challenges in Greece, Spain, Italy and other European countries could be considered either economic malpractice or misdiagnosis. It actually doesn’t really matter which at this point. With the European economy at a standstill or (at best) a sluggish trot, the next phase of the crisis could easily start in the coming month as the Greek electorate (hopefully) chooses a new government and struggles to chart a consistent course. At the same time, capital markets are clearly losing patience with the Spanish government’s attempts to recapitalize the banking system there.
The upshot here is that European policymakers would then move from the comfort of the family practice to the more chaotic environment of an emergency room. If they decide that Greece “Cannot be saved,” as so many pundits claim, then will they avoid the biases we outlined here – those shortcuts that doctors make during periods of stress and pressure? Will they see “Austerity” as the cure for every ailment, or will they remain flexible? Will they remain overconfident and (potentially) overplay their hand?
It is tempting to say that policymakers should follow the Hippocratic Oath and “First, do no harm.” Sadly, the situation in Europe is beyond that simple recommendation.