Title Page
Introduction
a. Global Health Issues b. Economic Impact
Behavioral Finance a. Emotional Biases i. Risk Aversion ii. Regret Aversion
Market Implications a. Every market in today’s economy was impacted either directly or indirectly by the SARS epidemic. i. Most saw measurable decreases in GDP b. Global cost of lost economic activity due to SARS was approximately $54 billion
Conclusion
a. Economic damage caused by SARS can be attributed to the behavioral finance emotional biases of loss aversion and regret aversion affecting investors globally.

Global Health Issues, Behavioral Finance and the Markets:
The Role of Behavioral Finance in how Global Health Issues Impact the Economy
Jonathan Davis
David A Kennedy
Lee V Smith
Tayler T Young
Syed Zain T Zaidi
November 10, 2015
University of Houston- Downtown

Global Health Issues, Behavioral Finance and the Markets:
The Role of Behavioral Finance in how Global Health Issues Impact the Economy With globalization on the rise, infectious diseases that appear in one country have the opportunity to spread rapidly to others. Recent examples include the 2003 outbreak of Severe Acute Respiratory Syndrome (SARS) and the 2014 outbreak of the Ebola virus. According to the World Health Organization (WHO), 8,098 individuals became infected worldwide with SARS and 774 of those individuals ultimately died from the illness (CDC, 2005). While Ebola killed 5,160 out of the 14,098 people infected with the virus (Barber, 2014). Collectively, though tragic, the outbreaks did not lead to the global health impact many feared. However, they had a tremendous economic impact. Though the most immediate economic impact is felt in the disease-inflicted countries, the economic costs from global diseases like SARS go beyond the damages to those countries. The economic shock to one country quickly spreads to others because of the increased financial linkages and increased trade brought on by globalization. As a result, every market in today’s economy was impacted either directly or indirectly by the SARS epidemic. Media coverage spread the news of the outbreaks rapidly and influenced public opinion on a global scale overnight. This is where behavioral finance comes into play. Fear set in amongst workers, investors, and consumers. Tourism declined and investor investment outflows ran rampant.
Behavioral Finance Behavioral finance attempts to understand and explain how people, collectively and individually, make financial decisions. It provides tools for analysis on a micro and macro level, incorporates investor wants, emotional and cognitive biases, and market anomalies to understand and possibly predict market and investor behavior. Of the biases, emotional biases are the most difficult to reconcile because they are impulse in nature and deeply rooted in the human psyche.
When workers watch the news and learn of a growing pandemic or potentially global health issue they instantly become fearful of traveling, attending social events, and even working if they are forced to be in close contact with those who ‘they view’ as possibly infected. As a result productivity declines, airlines have fewer passengers, and hotels have fewer guest. The economy experiences a decline as investors scale back their investments to compensate for decreased demand and increased risk. Essentially, this is a form of loss aversion bias. Irrationally, investors are fearful and place a greater emphasis on avoiding losses than gaining profits from remaining at peak efficiency and taking advantage of their competitors’ fears and loss aversion bias. This irrationality is further compounded when those investors begin to exhibit apprehension to reenter the affected market after the pandemic is contained, exhibiting the emotional bias of regret aversion. The investors regret for the action they take is greater than the regret for the one they fail to take. They avoid taking decisive action and capitalizing on the lack of competition because they fear that in hindsight, whatever course they select will prove suboptimal.
Market Implications In a Deutsche Bank report, analyst Andrew Zarnett noted, “The WHO estimated that total loss from the epidemic at East Asian countries was of $20 billion.” He went on to state, “We note that the losses derived from SARS for North American airlines were of ~$1 billion (3.7% drop in international traffic)" (Sorkin, 2014). SARS caused less than a 1000 deaths globally but produced substantial damage to the economies of China and Hong Kong (between 1-3% of GDP), Canada (0.6% of GDP), and the United States ($7 billion in GDP losses) (IATA, 2006). Experts have attempted to estimate the cost of SARS. Based on near-term expenditures and losses in key sectors such as medical expenses, travel and related services, consumer confidence, and investment short-term global cost of lost economic activity due to SARS was approximately $54 billion (Knobler, 2004). World Bank estimates that a larger scale global flu pandemic could have cost the global economy as much $3 trillion or 5% of the global GDP.

Conclusion Much of the economic damage caused by SARS can be attributed to the behavioral finance emotional biases of loss aversion and regret aversion. Investors became cautious about the possibility of future outbreaks, decreased demand, infected workers, and thus began to scale back their investments. This resulted in markets around the world experiencing measurable economic decreases.
References
Barber, E. (2014, November). Ebola Death Toll Surpasses 5,000 Worldwide. Time. Retrieved from http://time.com/3582804/ebola-death-toll-surpasses-5000-worldwide/
The Centers for Disease Control and Prevention. (2005). SARS Basic Fact Sheet. Retrieved from http://www.cdc.gov/sars/about/fs-sars.html
International Transport Association. (2006). Impact of SARS. Economic Briefing. Retrieved from https://www.iata.org/whatwedo/Documents/economics/Avian-Flu-Impact.pdf
Kessler, J. B., & Yiwei Z. C. (n.d.) Behavioral Economics and Health. Oxford Textbook of Public Health. Retrieved from http://assets.wharton.upenn.edu/~czhan/KesslerZhang_BehavioralEconomicsHealth.pdf
Knobler S., Mahmoud A., Lemon S., Mack A., Sivitz L., & Oberholtzer. (2004) Learning from SARS: Preparing for the Next Disease Outbreak – Workshop.
Smith, R. D. (2006). Responding to global infectious disease outbreaks: Lessons from SARS on the role of risk perception, communication and management. Social Science & Medicine, 63, 3113 – 3123. Retrieved from http://www.crassh.cam.ac.uk/uploads/documents/Smith%20infectious%20outbreaks.pdf
Sorkin, A. R. (2014). Calculating the Grim Economic Costs of Ebola Outbreak. CNBC. Retrieved from http://www.cnbc.com/2014/10/14/calculating-the-grim-economic-costs-of-ebola-outbreak.html