Checked my iphone early today – looks like lunch will be interesting – there’s a talk on cultural differences in global e-mail tagging strategies. Never could understand why I couldn’t google up all of the old messages about the global procurement system update. I hear the speaker’s the great grand-daughter of the inventor of those yellow sticky notes I used to post all over my cubicle. It’s nice not having cubicles anymore – just grab a mobile desktop when I choose to come in, and then search out a comfortable place for the day. Today I’m arriving early so I can sit in the area that used to be the walled-in corner office of the CIO – what a view!

I’m glad I read Anne Field’s article before that huge restructuring that took place just after the dust settled on the subprime mortgage crisis [1]. Those were dark days around here. But our company was following her advised strategy – sending new talent (the ‘high potentials’ or Hi-Po’s) off for frequent short-stretch assignments in other countries so they could handle being pulled in multiple directions. And they’d give groups of Hi-Po’s a challenging problem – like applying new leadership thinking to test different structuring alternatives to better align our human capital resources with our new strategy. Hi-Po’s were also tasked with learning from experts through both formal and informal mentoring programs. It seemed at the time that they were really hand-holding those Hi-Po’s. For example, it seemed like they were always sitting down to make sure they understood the leadership development objectives for every task they were given. I didn’t know at the time, but one of those Hi-Po’s was destined to be my boss.

Since she took charge of my group and announced she was a proud Millennial, things have changed for the better. It didn’t happen overnight, but I can’t believe how well she managed change in a group composed of tough-minded people representing multiple generations. One day she both e-mailed and snail-mailed (to make sure everyone got it) an article written way back in March of 2003 by David Stauffer [2]. It helped me realize how difficult a problem it was to manage our group, and it made me appreciate how she’d taken the time to understand what motivates each different generation and what the typical sources of inter-generational conflicts might be. As a borderline boomer, I was pretty disillusioned at the time – but then she made sure I was getting plenty of training in the hottest new areas.

Today we do business much differently than back then. Things move at such a high velocity – you have to have the right information systems in place to keep you in the game. For example, when there are new jobs put out for bid, the most lucrative contracts are for quick-turnaround projects - where if you don’t get it done before anybody else who might of made a competitive bid – you lose it all. That’s right – if another bidder beats you to the deadline, everything you’ve done is lost, and there’s no pay - $0.00. It’s that simple. Of course, you can still bid for standard fixed contracts, but the margins are razor thin. So, to be in the game for these fast-paced, high pay, high risk, knowledge intensive ventures, you learn to communicate efficiently, assign people with the right skill sets to tasks with little slack, and you track your prior wins and losses to harness as much business intelligence as you can. The information systems help you predict your suitability for a win, they facilitate coordinating the schedule and exchanging the necessary digital work products, but you need 110% of the brains of your people on task at all critical times. The stakes are high – but when the pressure backs off – there’s time for some fun.

Well, that’s it for today’s blog – will be interesting to see how it get’s interpreted by the company’s IDEA (Innovation Detection and Expert Advisor) system. Our group has learned a great deal from that system. As I recall, it came from a field of study called ‘text mining,’ and it was sold worldwide by a company founded by Harvard drop-out – I hear he is a Millennial, too - and a very rich one at that.

We've argued about the estimates for years. We've argued about whether illegal immigrant workers take jobs from US citizens (act as substitutes, in econ-speak) or do they allow US citizens to stay in better, perhaps supervisory, jobs (act as complements, in econ-speak). Now the Arizona legislature has decided that, arguments aside, these people must go. When I'm questioned about the impact of our "employer sanctions" legislation would be if it were successful, I have to ask what the goal of the law is. I usually get the response that the goal is to make illegal immigrants leave the state.

Given that goal and looking at the impact of its success is rather worrisome. The Pew Hispanic Center estimates that 8 percent of Arizona's population is here without the appropriate paperwork. If the law is successful in that given goal, one could expect Arizona to lose that portion of its population. But wait, there's more! Some of those people here illegally are related to, by marriage or birth, to US citizens. If we make the illegal immigrant leave, then surely we'll lose the US citizen too?

There is plenty of anecdotal evidence that this is happening. The problem is quantifying it. The US does not keep data on people that leave the country and a full census is only done once every ten years. For the population of illegal immigrants, driver license data is no help. School enrollment? Not a help either as many of the people who cross our border illegally leave their children at home and those that enter legally and overstay their visas may have children.

That leaves us in a quandry. Population growth helps drive economic growth, especially in Arizona. Take away that growth and we know the picture is not rosy. The problem is that we can't quantify how "not rosy" it could get.

In a recent survey that my wife took, she indicated that she supported the Fair Tax. I asked her why. Without knowing any of the details of the proposed legislation, she said “Because fairness is good”. Of course, calling something Fair, doesn’t necessarily make it fair.

The Fair Tax has been discussed, and even supported by some of the candidates, in the Republican and Democratic presidential debates, but is it really fair? I, for one, don’t think so.

The proposed Fair Tax legislation would eliminate income taxes, payroll taxes, and estate and gift taxes and replace them with a national sales tax on all retail purchases of goods and services. It would also eliminate the IRS. The legislation proposes a tax rate of 23%, but that is an “all inclusive” rate. State sales taxes are stated as “exclusive” rates, a rate that is added to the price of the good or service. That rate for the Fair Tax would be approximately 30%.

At first blush, the Fair Tax sounds simple and may even seem fair, but its not. Let’s assume that you are retired and live off of your savings and social security. Chances are that you pay little or no income tax, and certainly no payroll tax, under the current system. However, under the Fair Tax you will pay a 30% national sales tax on all of your purchases of goods (including food) and services (including haircuts). You already paid income tax on your savings (when you earned the money that you saved). Now you have to pay tax again when you spend those savings. Fair?

Let’s assume you want to buy a house to live in. You will have to pay a national sales tax of 30% on top of the price of the house. You will be competing to purchase the house with an investor who wants to hold it as a rental property. Guess what? The investor isn’t buying the house as a retail purchaser so he doesn’t have to pay the 30% sales tax. In other words, there is no way you can compete against an investor to purchase that house. Fair?

Let’s assume you are single and make $35,000 a year. No more federal income tax or payroll taxes are withheld from your paycheck. You (and everyone else) also get a “prebate”, an advance rebate of the Fair Tax equal to the amount that would be paid by someone earning at the poverty level. What a great deal! But, you have to pay a 30% sales tax on all purchases of goods and services. Would your total federal tax burden, net of the prebate, decrease? If you use all of your income for consumption of goods and services it would actually increase. Fair?

Let’s assume you make $5 million a year in compensation. You only consume $1.8 million and save the rest. Your total federal tax burden would go down by approximately 60%. It would go down by an even greater percentage if you had gains on the sale of investments, since they aren’t subject to the Fair Tax. Fair?

Other arguments for the Fair Tax are that it is simple and that it is easy to administer (thus the elimination of the IRS). I don’t agree with either of those arguments, but I’ll leave that discussion for another day.

What the Fed is doing and the stimulus package that Congress is likely to pass and the President sign will mitigate how long and deep a slowdown or recession will be but I don’t believe we can avoid a downturn now. As we know, monetary policy works with a lag and it will be months before the full impact of the Fed change works its way through the economy. Similarly the stimulus package most optimistically will hit in June or July of 2008. So while both will help and the beginning financial and economic responses to the Fed change should be felt much earlier than the middle of 2008, it is unlikely that this will be enough to prevent the downturn. I am glad that the Fed has moved aggressively over the last two weeks but wish the FOMC had recognized the seriousness of the credit crisis and its impact on the economy in general several months ago. Better late then never though as I suggest and I am certainly glad that the Fed has moved aggressively now.

It can take up to nine months for Federal Reserve actions to work themselves through the real economy. In the short term of the next several weeks, most of the impact of this morning's 75 point basis cut will be psychological, and the Federal Reserve knows this. If the rate cut is too large there is a risk of starting a panic over how bad the economy really is, while too conservative a move could make people think that inflation is about to take off.

Originally I thought the Fed would show some restraint so as not to worry people. However, the emergency meeting suggests either that the Fed sees the economy as worse than others see it or that they are trying to shock people into believing they are out in front of the problem. They appear to be reacting to the stock market declines of the last few days, which makes me lean to the second explanation. It is more of a slap up side the head than it is an attempt to save a patient who has gone into cardiac arrest. The markets were starting to panic and quick action is often the only effective action.

I think the Fed intends to take the federal funds rate down to 2.5 percent and keep it there for a while. I think the Fed will cut rates another 50 basis points at the next meeting on January 30th to make sure everyone gets the message that the Fed is on the job. They will then make the rest of the cuts down to 2.5 percent at the next few meetings after that. They seem to think inflation will remain under control which appears to be a view shared by the various financial markets.

It is worth noting that the Fed sees its job as keeping inflation under control. If evidence were to surface that inflation in food and fuels is spreading to the rest of the economy their willingness to hold interest rates down to help the economy could evaporate.

Here is another interesting article on the prospects of a recession this year from CNNMoney.com.

The question for many economists is not if the U.S. economy will fall into a recession. It's whether it already has.

The formal recognition of a start of a recession probably wouldn't come for at least six months if not more than a year, as official judges from the National Bureau of Economic Research (NBER) pour through various economic readings.

This is consistent with my last blog post.

With each New Year comes the usual array of pundits who forecast the future course of economic activity. What do we make of the soothsayers’ predictions this year? Perhaps this is the most uncertain time in recent economic history. The year finished with a reasonably robust equity market and a Fed seemingly poised to “rescue” the economy from the jaws of the “credit crunch.” At the same time many forecasters pointed to storm clouds such as looming trade and domestic deficits, a beleaguered consumer, buffeted by high gas prices and skidding household equity, and the continuing threat of adverse geo-political shocks. So what do we make of all of this?

To date I have been riding the optimistic wagon, suggesting that the national economy would avoid recession -- perhaps by a just a whisker. It is time to face the music. Wall Street has begun the year with a thud, the December jobs report is abysmal with the unemployment rate actually popping to 5 percent, and the real estate sector seems poised for another leg down on housing prices. There is still reason to hope that the downturn will be relatively short lived and that the latter half of 2008 will bring modest economic growth, but for now the economy has stalled. Is this a recession? Well if it walks like a duck and quacks like a duck, why not call it a duck? The NBER will probably make the official call in a few months. Let’s go with a recession that began in October 2007 and ends in late spring, with a little sign of life in real estate come mid summer. I said little, not anywhere near a return to boom times of 2005. All of this presumes that we don’t get caught watching too much election coverage this summer and forget to shop -- in which case the slowdown could linger. Here’s wishing you a prosperous new year! Now hunker down for the next 9-12 months!!

The four states where investors contributed the most to housing price increases during the housing boom were California, Nevada, Florida and Arizona. As a result, these states had some of the highest rates of housing price increase during the boom. They are also expected to suffer more than other states as a result of the current wave of housing price declines.

Is it possible to measure the relative impact of the housing bust on a state versus the nation as a whole?

Economic theory says that one of the first areas to suffer as the economy weakens is spending on durable goods. 'Durable goods' are goods that last a long time -- think big ticket items like autos, where the purchase represents a significant commitment of finances. When the economy weakens, durable good purchases are expected to react first, because they are more expensive and they are easier to delay due to their longer life.

One of the ways economists track durable goods is to watch auto sales, because sales data for autos is available nationally and by state. The volume of auto sales is estimated nationally based on a survey of retailers. But these surveys are not conducted on a state level. In states like Arizona, information on auto sales is collected as a result of the state sales tax. Even though these two measures are not precisely comparable, taken together they do illustrate broad trends.

In Arizona auto sales have been flat or negative since December 2006. Year to date through September 2007 sales were down 6.2 percent compared to the same period last year. In contrast, national auto sales are actually doing better than last year -- up 2.6 percent for the year through September.

When auto sales are subtracted from total retail sales, Arizona shows an increase of 3.6 percent year to date, a period when retail minus auto nationally showed a 4.0 percent increase. Retail sales growth in Arizona typically outpaces sales activity for the nation as a whole by a significant margin, due to our greater population growth. This past year, however, while Arizona absorbed the shock of the housing downturn, auto sales are fared much worse than the national average, while non auto sales simply slowed to the national average.

The housing bust hit incomes because people can no longer refinance their homes. People working in real estate and real estate related areas saw their earnings drop, and investors watched income from real estate related investments evaporate. The sign on the street that people are in pain is fewer new cars. It appears that the impact of the housing bust on Arizona is greater than the national average, particularly with regard to durables like autos.


Retail Auto Sales Growth
AZ US
2003 6.90% 2.60%
2004 7.00% 2.80%
2005 10.10% 2.70%
2006 2.50% 1.40%
2007 through September -6.20% 2.60%

When it comes to computing, it's all about capabilities - and it's still about the appliances that can deliver them. This is where Andy Grove's points in his article in Condé Nast Portfolio about his forthcoming book differ from what I can gather are in Nicholas Carr's next book, "The Big Switch." Grove makes the case that large corporations with shareholders asking for more should set their sights on cross-boundary disruptions. It's a growth strategy – one he cites that Apple Computer exemplifies by its entry into the music industry. Interesting, the appliances delivering personal music experience capabilities are really embodiments of personal computers. They allow us to manage personally selected content, aka a client/server model. So, has the PC really disappeared, or is it morphing as new industries (like music) become vulnerable to innovation and big corporations looking for new growth, i.e., the 'capability predators?' As those PC vs. Mac ads indicate, all those iXXX users out there would have to agree that PC is an old term, but they're not likely to predict that their personal pods, laptops, etc. will be totally dependent on an always-connected grid.

It's hard for me to analogize all of computing to electricity like Carr frequently does, and while companies like Apple are out there reinventing the PC as they exploit their organizational capabilities to attack new industries, it makes me wonder if the lights are dimming for Carr's simplistic view. My perspective was reinforced today when I read the article in the Business section of the Arizona Republic citing how Home Depot is now offering residential solar-power systems in all of its 55 Arizona stores. Maybe Personal Power Systems (PPSs) will be all the rage. I'm going to have to go check them out. I'd bet that PPS has some embodiment of a PC - imagine that, a 'Big Switch' that will invoke my PPS to delink me from the grid. It's not really that shocking, is it?

Everyone is talking about the employer sanctions law that comes into effect in January. Who will be affected? Seems to me that the small businessman sees himself (herself) as a likely target. Taking away the business license from someone who hires only two employees results in the loss of just two Arizona jobs. Shut down a large business that hires, for example, 500 employees and the economic impact is suddenly more serious. Is that how we should look at it?

If you're driving along a highway and see a curiosity at the side of the road, such as the carnival just south of Phoenix on the I-10, it's easy to spend a second or two looking at it. The problem is that the couple of seconds spent by each driver adds up to a long tie-up for the people at the back of the line. This is what could happen with small business and the employer sanctions law. Because small business sees itself as a likely target, small business hesitates to invest. While each small business is, well, small, the aggregate effect of small business in Arizona is large. We can't think of small business as just another two jobs.

Wealth in a market economy brings certain benefits that are accepted by the general populace as reasonable if not, perhaps, totally "fair:" wealthy people buy more expensive (and safer) cars, they have fancier (and healthier) diets, they stay in nicer (and cleaner) hotels, they purchase more expensive (and better) medical care, and they live in more attractive (and more secure) neighborhoods. And if legal troubles should arise, they hire more expensive (and more successful) legal defense. Life can be better if you have money.

But most people interpret "rule of law" to mean that there are certain areas where, to the extent possible, everyone is the same, irrespective of wealth; accountability before the law is one of these areas. While a wealthy person's ability to argue his or her case may be enhanced by access to better legal representation, accountability should ultimately be the same. And if a law has been broken, justice requires the same consequences for everyone.

Fifteen jails in California have instituted a plan that introduces an explicit "market place for punishment" in which buyers with money can chose their punishment. In an effort to address prison over-crowding, these jails have instituted a "pay-to-stay" program in which prisoners can opt to buy out of staying at the county jail and move to a privately-run jail. Using hotel-style verbiage, the private jails' "benefits include assignment to a private cell with a regular door, separation from violent offenders, access to the jail’s movie collection, and the ability to carry an iPod or cell phone."

This symposium considers the implications of pay-to-stay programs. Arguments include discussion of competing objectives such as the need for entrepreneurship and innovation in the business of punishment, the fear that this plan will only mask the need to make all prisons tolerable by letting some people buy their way out of the squalor, the lack of "virtue" this plan introduces in society's enforcement of ethics, and the consequences of institutionalizing the reality that money makes a difference in punishment just like it does in every other market.

This may make plea deals even more successful: go to trial or get three years, upstairs room with a view, wi-fi and cable. This adds the marketplace as a third to the tension already in the dyad of law and king discussed in "lex rex."

Here’s a charity you might not be aware of: a math teacher in a Rochester, NY, public school is accepting donations to enable the class to conduct “experiments in calculus” as part of the math curriculum. The campaign goal is $247 and charitable donations have covered 46% of that amount so far. Only about $125 to go!

How do I know about this charity? Through the marketplace for charitable donations at DonorsChoose.org, a website that specializes in connecting donors with opportunities for charitable donations.

Columbia University held a “Hacking Philanthropy” mini-conference this past September (2007) and published the transcript of the discussions that took place there. “Hacking” is a term of respect: it refers to an effective, innovative and efficient solution to a challenging problem. “Hacking philanthropy” represents a new movement in which web technology is doing for the world of charitable donations what it has already done for many for-profit businesses: it is providing a marketplace where donors and charities communicate directly with each other.

Commentary on the conference pointed out how radical a departure a marketplace is from the more traditional large-charity-based pattern of giving. The degree of departure is illustrated by the fact that the top 25 charities (in terms of total annual donations received) in the Philanthropy 400 are the same today as they were 40 years ago with the exception of only two new entries (Habitat for Humanity and AmeriCares are the only ones to have entered the top 25 since 1965). Compare this stability to the top 25 for-profit companies in 1965 and today in the Forbes 100 list, where a third of today’s top 25 didn’t exist 40 years ago.

The Philanthropy 400 received $62.7 billion in donations in 2006, up 13% from the year before. This represents more than one-fourth of the total donations made that year. The Chronicle of Philanthropy charges a fee for the full listing of the top 400 but publishes highlights from the list. The top spot on the list for 2006 is the United Way with $4 billion in donations; the Salvation Army, AmeriCares, the American Red Cross, and the American Cancer Society round out the top five.

Why philanthropic markets are emerging now as an alternative to the big charities was debated at the Columbia conference. One theory is that, much as the 1937 article on the theory of the firm pointed to the importance of transaction costs in determining the need for an intermediary in for-profit economies, the same principle applies in philanthropy: as transactions (and connectivity) costs plunge due to decreased computing and communication costs, a marketplace connecting donors and recipients can replace firms (charities) that used to provide that service for a fee.

A donation of $25 to a large charity may not feel like much, but it represents 10% of the total campaign for a Rochester, NY, calculus class charity – that appeals to some donors. A philanthropic (virtual) marketplace makes that donation a real option for many givers. Emerging markets like DonorsChoose.org may become the new organizing principle for philanthropy much as free markets have shaped for-profit economic activity. Charles Best of DonorsChoose.org explains why he thinks the marketplace is a more effective philanthropic mechanism:

We push production to the front-end user in a way that makes them feel like they are partners with us. So that starts with frontline classroom teachers being the ones to come up with the micro solutions that will most help their students. And we actually see that these teachers come up with ideas that are far more innovative and creative than any top-down program would be. And we turn to those teachers to help screen and authenticate proposals submitted by teachers in other regions. We turn to the students who benefited to describe the impact of the project rather than having a staff person go in and record things….

One venture capitalist is already sold on this market.

In a recent Knowledge@W. P. Carey article, the findings of Hoskisson and Kim align with my priors. It would seem sheer folly to believe that major multinationals would locate in a region simply to reap the short run tax benefits. R&D investments by businesses pay off in an array of ways but the size of the ROI depends on the quality of the people available to conduct the analysis. And R&D, no doubt, is more dependent on proximity to quality technical workers than are regular manufacturing positions or even high tech manufacturing positions. The lesson for policymakers should be clear. Maintain a business climate conducive to attracting and retaining people with technical skills, and if you don’t, no amount of R&D tax incentives will substitute.

The article reminds me of a related thread. Many businesses may find advantages in locating R&D and related manufacturing facilities in close proximity. Pressures for reducing the cost of manufacturing invariably increase the pressure to locate in less developed countries. But there remain challenges of finding technical talent in the same location where manufacturing labor costs are low. When confronted with this challenge, Motorola responded by maintaining R&D facilities in Arizona and manufacturing in nearby Sonora Mexico. US border States are uniquely positioned to leverage this location advantage and should be devoting more energy to using this advantage in economic development initiatives.

An earlier post discussed Radiohead's experiment in releasing their new album directly to the public -- no record label company, no CD, no iTunes, and, most surprisingly, no set price -- in which all a person needed to do to get their music was go to their server, download, and pay what he or she thought the music was worth.

It now looks like this may be an experiment of a very different kind: a marketing experiment, yes, but not the kind everyone thought:

[I]n the days since that announcement, a whole lot of that fanfare has curdled, thanks to moves by the band and its management that some see as dishonest, distasteful and, well, downright un-Radiohead. The sentiment among many fans seems to have gone from admiration for the group's willingness to let the consumer decide how much to pay for the new album to anger over the low quality of the downloads — and dismay over the band's manager's statement that the you-choose-the-price downloads were just a promotional tool for the release of the physical CD.

A lot of people thought the "pay what you want" experiment was a bit risky; Radiohead may find out that the "it's just a marketing ploy" version of this experiment may be even riskier.

A more detailed understanding is being developed of the tragedy this week in which four people at an Ohio school were shot by a 14-year-old student at that school. In the midst of trying to figure out what actually took place, what should best be done to consol the families and students impacted by the shootings, how best to be responsive to the media and the public, and while continuing to operate the school, the Mayor has also asked the CEO of the school to do something else:

to “deliver to Mayor Jackson by noon on Friday a schools safety and security plan. The plan will outline not only the technology and personnel needed to keep students safe but also information on methods to help spot troubled students before they act out.

Details about this plan will be presented to the public this Friday.

Is this a good way to address managing risks of such a complex nature? While school officials are trying to understand and manage all the consequences of such an unprecedented event, is it also a good time for them to simultaneously use the next 72 hours to specify, write-up and deliver a comprehensive safety, security and psychological screening program to effectively deal with future events of this type?

The answer is “no” and, to some extent, “obviously no.” But if the answer is obvious, why is reacting this way so common? And so natural?

It is natural, say psychologists Amos Tversky and Nobel Laureate Daniel Kahneman, because it is consistent with how the human mind works. And the way it works, their research shows, has some “quirks.” These quirks cause a distortion in our perception and understanding of reality in much the same way that our vision has some “quirks” that cause distortions in the way we see things. On a crystal-clear day, for example, the dock a cruise ship is approaching will appear to be much closer than it does on a slightly misty day. Ship captains are trained to adjust for these visual distortions in much the same way the right-hand outside rear-view mirror on a car encourages the driver to adjust for the fact that vehicles are actually closer than they appear. In all these cases, both mental and visual distortions lead to poor decision making unless adjusted for.

One of the most pronounced “thinking distortions” Tversky and Kahneman discovered is now referred to as the “availability” bias. This refers to the fact that events which are easy to imagine or recall – that is, events that are easily “available” to our imagination or memory – are also events that we think are more likely to occur. Why is this a “distortion” in our thinking? Because events that are easy to imagine or recall are also events that typically turn out to be rare and dreadful. The result: we habitually overestimate the chances of rare and dreadful events occurring.

It’s easy to imagine a child being kidnapped by a stranger, for example, but crime statistics show that kidnapping by family members or close friends is orders of magnitude more likely. It’s easy to imagine a plane crash or nuclear-plant melt-down or an e coli attack but these, combined, are not even close to the threat of dying from, say, bee stings.

Why does this distortion in our thinking lead to bad decision making? Because by overestimating the chances of rare events occurring, we overreact – and over-spend – in trying to prevent them. Bruce Schneier has reduced this “availability” bias in our thinking to this equation:

Novelty + dread = overreaction

Schneier quotes psychologist Scott Plous, who wrote

"In very general terms: (1) The more available [memorable] an event is, the more frequent or probable it will seem; (2) the more vivid a piece of information is, the more easily recalled and convincing it will be; and (3) the more salient something is, the more likely it will be to appear causal."

It is very hard to avoid a visceral reaction to stories about novel and dreaded risks. We routinely give more credence to one vivid story (one data point) than to broad-based statistical studies. We respond – and remember – TV dramas or thriller-movies more than database summaries. News writers appreciate this bias and the result is a newspaper full of rare events. As Scheier says,

I tell people that if it's in the news, don't worry about it. The very definition of "news" is "something that hardly ever happens." It's when something isn't in the news, when it's so common that it's no longer news -- car crashes, domestic violence -- that you should start worrying.

The research of Tversky and Kahneman makes sense, but when we come face-to-face with a rare and tragic event, we still instinctively want to do something, even if it isn’t effective: allocate resources, make plans, find who is responsible. But since it is hard enough to prevent very common and well-understood risks, coming up with a plan, on the spot, to address the rare and tragic is virtually impossible. But we persist and respond to rare tragedies with risk-management plans made “as the crow flies:” no more than 4 fluid ounces of liquids in your plane carry-on (and no toothpaste); suspend students who draw pictures of guns; develop comprehensive security plans integrating technology, personnel and psychological screening over the weekend to prevent school shootings.

In 2003, worldwide, 23 Americans were killed by acts of terrorism. In the same year, about 42,000 were killed on American highways. But which of these risks makes for a more memorable story? The reaction in Ohio is understandable because it is consistent with a thinking bias we all share: the urge to “do something” about rare and dreaded risks and the overreaction this urge leads to.