Back to normal?

Should you go to your place of business or workplace?

Things are starting to reopen. My neighborhood restaurant opened last weekend, and the outdoor patios were full. I’ve seen photos of marine drive and videos of filled buses in Mumbai.

And I’m confused.

Why is everything back to normal? Especially in India. What happened to “flattening” nay “crushing!” the curve?

The data certainly does not support reopening.

Following is the chart of daily new cases in India. It’s increasing at 11,000 cases per day.

The following is the chart of the US; this is what flattening the curve looks like-

And to see what crushing the curve is like, take a look at Italy-

I still have very little idea why the Indian government suddenly relaxed everything. When the government imposed lockdown in March, it was a bold move. The world appreciated the move. What happened now?

These are tough times, and I know I’m speaking from a privileged position and where I can work from home, and I can’t possibly understand the daily wage earner. But there must be a better way to handle the reopening.

I was talking about this with a friend in India, and he mentioned that the testing had not improved either. The hospital system is being overwhelmed in major cities like Mumbai and Ahemdabad.

There is a strong case for the argument that lockdown did not work; the cases did not go down as it did in the US and other countries, then why continue it?

I don’t know why we did not see any drop in the number of cases in India even three months post lockdown. It could be the case reporting system or the testing system or something else entirely. I don’t know. This is a complex system, too many factors for someone like me to judge the failure of lockdown fully. Still, I just wished there was a more data-driven approach then emotional one from the government. But if we were to only look at the numbers, it’s a no brainer to continue the lockdown (maybe even put stricter laws into place as there is no evidence that lockdown 1.0,2.0,3.0 even worked).

But for now, restrictions have been lifted, so should you risk your life to go out conduct the business/job? How much income from business/job justifies the risk of catching the virus?

I will try to build a model that will come up with a number that justifies the risk of going out and conducting business.

Warning- Oversimplification ahead!!

Ignoring the emotional and psychological factors, we will use Expected Value(EV) to determine the income you should be generating to risk contracting the virus.

Expected Value-
Think of every decision as a bet with a probability and a reward for being right and a probability and a penalty for being wrong. Normally a winning decision is one with a positive expected value, meaning that the reward times its probability of occurring is greater than the penalty times its probability of occurring, with the best decision being the one with the highest expected value.

Mathematically, Expected Value is expected as the sum of probability of each event multiplied by their pay off.

In our case, we assume there are three events if you decided to go to work.

Event 1: You don’t catch the virus at all
We’ll assign the probability of this happening as 30%. In this scenario, you get to keep all of your income.

Event 2: You catch the virus but with mild symptoms
The probability of this happening is the highest. We’ll say there is a 55% chance of you catching the virus but don’t need to go to the hospital.

Event 3: You need to go to the hospital and need treatment for the virus
We’ll say there is a 15% chance of this happening.

So our EV would look like this-

EV= 0.3*(Payoff from event 1) + 0.55*(Payoff from event 2) + 0.15*(Payoff from event 3)

EV should be at least be 0 or positive. We will solve the above model for Payoff from event 1.

We know that payoff from event 2 is Rs. 0. Since you’ll get stuck at home in self-quarantine.

The payoff from event 3 is actually negative since you will have to pay hospital costs.
The average per night cost is around Rs.75k. And the incubation period is 14 days.
So, the total cost is about Rs.1 Million or 10 Lakhs.

So let’s plug in the values-

EV= 0.3*(Payoff from event 1) + 0.55*(Payoff from event 2) + 0.15*(Payoff from event 3)
0 = 0.3*(Payoff from event 1) + 0.55*(0) + 0.15*(-1M)
0 = 0.3*(Payoff from event 1) + 0 - 150k
The payoff from event 1 = (150k/0.3)

The payoff from event 1 = 500k or 5 lakhs.

In other words, you should be generating ~Rs. 5 lakhs of income per month per person to justify the risk of catching the virus and incur the cost of COVID care.

Two ways the threshold of Rs 5L can come down is by lowering the cost of hospitalization and/or lowering the probability of event 3, i.e, catching the virus. Social distancing goes a long way there.

So, to summarize, the opportunity cost is too high right now to go to work, but if you have to go to crowded public places, practice extreme social distancing.

Of course, Expected Value comes from the world of large numbers, so our model will be correct if the sample size is large enough and will fail for individual cases.

If nothing else, this, for me, was an interesting exercise in thinking in probabilities and how expected value can be useful while making decisions.