We live in a world that’s more interconnected than ever before. Our lives are shaped by outbreaks – of disease, of misinformation, even of violence – that appear, spread and fade away with bewildering speed. To understand them, we need to learn the hidden laws that govern them.

From “superspreaders” who might spark a pandemic or bring down a financial system to the social dynamics that make loneliness catch on, The Rules of Contagion offers compelling insights into human behaviour and explains how we can get better at predicting what happens next.

In this exclusive excerpt from his new book, author Adam Kucharski explores what links biological viruses with episodes of financial free-fall.

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Read the excerpt:

Viewing at-risk people as special or different can encourage a “them and us” attitude, leading to segregation and stigma. In turn, this can make epidemics harder to control. From HIV/Aids to Ebola, blame – and fear of blame – has pushed many outbreaks out of view. Suspicion around disease can result in many patients and their families being shunned by the local community. This makes people reluctant to report the disease, which in turn amplifies transmission, by making the most important individuals harder to reach.

Blaming certain groups for outbreaks is not a new phenomenon. In the 16th Century, the English believed syphilis came from France, so referred to it as the “French pox”. The French, believing it to be from Naples, called it the “Neopolitan disease”. In Russia, it was the Polish disease, in Poland it was Turkish, and in Turkey it was Christian.

Such blame can stick for a long time. We still refer to the 1918 influenza pandemic, which killed tens of millions of people globally, as the Spanish flu. The name emerged during the out-break because media reports suggested Spain was the worst hit country in Europe. However, these reports weren’t quite what they seemed. At the time, Spain had no wartime censorship of news reports, unlike Germany, England and France, who quashed news of disease for fear that it might damage morale. The media blackout in these countries therefore made it appear that Spain had far more cases than anywhere else. (For their part, the Spanish media tried to blame the disease on the French.)

If we want to avoid country-specific disease names, it helps to suggest an alternative. One Saturday morning in March 2003, a group of experts gathered at WHO headquarters in Geneva to discuss a newly discovered infection in Asia. 78 Cases had already appeared in Hong Kong, China and Vietnam, with another reported in Frankfurt that morning. who was about to announce the threat to the world, but first they needed a name. They wanted something that was easy to remember, but which wouldn’t stigmatise the countries involved. Eventually they settled on Severe Acute Respiratory Syndrome, or SARS for short.

The SARS epidemic would result in over 8,000 cases and several hundred deaths, across multiple continents. Despite being brought under control in June 2003, the epidemic would cost an estimated $40-billion dollars globally. It wasn’t just the direct cost of treating disease cases; it was the economic impact of closed workplaces, empty hotels and cancelled trade.

According to Andy Haldane, now Chief Economist at the Bank of England, the wider effects of the SARS epidemic were comparable with the fallout from the 2008 financial crisis. “These similarities are striking,” he said in a 2009 speech. “An external event strikes. Fear grips the system, which, in consequence, seizes. The resulting collateral damage is wide and deep.”

Haldane suggested that the public typically respond to an outbreak in one of two ways: flight or hide. In the case of an infectious disease, flight means trying to leave an affected area in the hope of avoiding infection. Because of travel restrictions and other control measures, this generally wasn’t an option during the SARS epidemic. Had infected people travelled – rather than being identified and isolated by health authorities – it could have spread the virus to even more locations. The flight response can also happen in finance. Faced with a crash, investors may cut their losses and sell off assets, driving prices even lower.

Alternatively, people may “hide” during an outbreak, dodging situations that could potentially bring them into contact with the infection. If it’s a disease outbreak, they might wash their hands more often, or reduce their social interactions. In finance, banks might hide by hoarding money rather than risking lending to other institutions. However, Haldane pointed out that there is a crucial difference between hide responses in disease outbreaks and financial crises. Hiding behaviour will generally help reduce disease transmission, even if it incurs a cost in the process. In contrast, when banks hoard money it can amplify problems, as happened with the ‘credit crunch’ that hit economies in the run up to the 2008 crisis.

Although the notion of a credit crunch would make headlines during 2007/8, economists first coined the term back in 1966. That summer, US banks had abruptly stopped lending. In the preceding years, there had been high demand for loans, with banks making more and more credit available to keep pace. Eventually, it had got to the point where banks weren’t taking in enough money in savings to continue lending, so the loans stopped. It wasn’t just a matter of banks asking borrowers for higher interest rates. They weren’t lending at all. Banks had reduced the availability of loans before – there were several instances of ‘credit squeezes’ in the US during the 1950s – but some thought “squeeze” was too gentle a word to describe the sudden impact of 1966. ‘A “crunch” is different,’ wrote economist Sidney Homer at the time. “It is painful by definition, and it can even break bones.”

The 2008 crisis wasn’t the first time Andy Haldane had thought about contagion in financial systems. “I remember back in 2004/5, writing a note about us having entered the era of ‘super-systemic risk’ as a result of these sorts of infections.” His note suggested that the financial network might be robust in some situations and extremely fragile in others. The idea was well-established in ecology: the structure of a network might make it resilient to minor shocks, but the same structure could also leave it vulnerable to complete collapse if put under enough stress. Think about a team at work. If most people are doing well, weaker members can get away with mistakes because they are linked to high performers. However, if most of the team are struggling, the same links will instead drag strong members down. “The basic point was that all this integration did indeed reduce the probability of mini-crashes,” Haldane said, “but increased the probability of a maxi-crash.”

It may have been a prescient idea, but it didn’t spread very far. “That note didn’t really go anywhere unfortunately,’ he said, ‘until the big one came.” Why didn’t the idea take off ? “It was hard to spot any examples of such systemic risk at the time. It appeared to be a very flat ocean at that point.” That would change in autumn 2008. After Lehman Brothers collapsed, people across the banking industry started thinking in terms of epidemics. According to Haldane, it was the only way to explain what had happened. “You couldn’t tell a story about why Lehman had brought the financial system down without telling a contagion story.” DM/ML

The Rules of Contagion: Why Things Spread – and Why They Stop by Adam Kucharsky is published by Profile Books (R355). Visit The Reading List for South African book news – including excerpts! – daily.