The Hidden Cost of False Alarms: A New Marketplace Podcast

(Photo: Scott Davidson)

Our latest Freakonomics Radio on Marketplace podcast is called “The Hidden Cost of False Alarms.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript here.)

The central facts: between 94 and 99 percent of burglar-alarm calls turn out to be false alarms, and false alarms make up between 10 and 20 percent of all calls to police.

There are at least three things to consider upon learning these facts:

1. If a particular medical screening had such a high false-positive rate, it would likely be considered worse than worthless; but:

2. With more than 2 million annual burglaries in the U.S., perhaps it’s worth putting up with so many false positives in service of the greater deterrent; as long as:

3. The cost of all those false positives are borne by the right people.

Can you already figure out whether No. 3 is in fact the case?

You’ll hear from Temple economist Simon Hakim, who has been studying this topic for years. Here’s one paper on the economics of false alarms, coauthored with Erwin A. Blackstone and Andrew J. Buck:

Ninety-four to ninety-nine percent of all police physical responses to burglar alarm activations are false. In 2000 police responded to 36 million false calls at an estimated cost of $1.8 billion. This paper presents and evaluates ten police policies for dealing with this waste of police resources.

Hakim proposes a public-private market response to fight this problem, including higher fines, education, and registration fees.

You’ll also hear from the police chief of Fremont, Calif., Craig Steckler. He says his department gets about 4,000 alarm calls each year:

You wouldn’t stay in business if 95 percent of the product you put out was a bad product, right? You wouldn’t have customers. … If you buy a washing machine from Sears and it malfunctions, you don’t call the city maintenance department to come out and fix it. So if you buy an alarm, why do you call us to come out when it’s broken or it’s not working?

Some cities have begun to fine homeowners who rack up multiple false alarms, which is one way of introducing accountability. As for the alarm industry? The Security Industry Alarm Coalition says it’s dancing as fast as it can to bring down the number of false positives. Here’s what the SIAC’s Ron Walter told us:

“It’s our number-one priority.  This is the one issue that we have decided has to be addressed.”

But as our podcast makes clear, the incentives are misaligned here. The alarm companies are doing quite well by passing along some of their costs to police departments (and, of course, taxpayers). Industry analysts say that industry leader ADT, for instance, has an operating margin of about 25 percent on roughly $3 billion in revenues.

If you were running an alarm company, how much effort would you put into voluntarily lowering the false-positive rate?


Eric Van Hoesen

Most of the costs associated with false alarm response are fixed costs and not variable costs. The police are already on the job and their equipment has been paid for. The next false alarm does not raise the cost of polices services unless an officer has to be called in on overtime to respond. Admittedly it may divert an officer from a more pressing need.

Interestingly,most police administrations decry the false alarm rate while using those same response statistics to argue for higher police staffing.

As others have noted, many jurisdictions have stopped responding to alarms, or t least assigned them their lowest priority.

Marty Joyce

You need to add the cost of false or malfunctioning activations of fire alarms, The current standards require automatic response within moments of activation. Many departments report fire alarms account for up to 50% of responses. Most departments require several pieces of apparatus to respond.

Hideyo Imazu

In Japan, burglar alarms are common but they do not directly call police. They notify the companies running alarm systems and their personnel goes check the home or office firing alarm. If the alarm company confirms a criminal activity, they call police. Burglar alarms are service rather than mere devices. Alarm services charge fee monthly. I take this kind of system for granted but it contains incentive to keep false alarm rate low - it's alarm companies interest to lower it. Also, those companies have incentive to maintain the system well. Otherwise, they lose contracts.

FactChecker

The statistics that you site from Hakim are nearly a decade old. Several hundred municipalities have introduced false alarm ordinances during that period and alarm technology has evolved. Do you beleive those numbers you cite are still relevent?

AZ LEO

How can you put a price tag on the false alarm problem when the cost must include the lives of the police officers who are killed in the line of duty? The "rut of responding on false alarms" is one of the top ten reasons that experienced lawmen are killed in the line of duty.
The alarm industry is all about the recurring monthly revenue or "RMR” while their industry lives on the back of the local cop. Try selling alarm systems when you have to tell the customer that the alarm company can not call the police, instead the homeowner will have to arrange for someone to go check on the alarm activation and see if a crime has occurred.
A city uses the assessment or fine as an incentive to reduce false alarms by charging the alarm user in hopes that they will get the system fixed. People need to take the operation of an alarm system seriously. Proper user training, alarm verification and cancellation procedures, system testing, repairs and maintenance are necessary. When was the last time you tested your alarm system?? 15 to 20 false alarms at the same location in less than 1 year is not uncommon. Large retail operations include a budget for several thousands of dollars in false alarm fines. To them it is just the cost of doing business. Tell that to the family of the dead police officer who responded to "just another false alarm call."

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Chris

Here is yet another great example of why we need private and not public security.

Roger Jones

Having been in the Alarm Industry for more than 30 years, I have heard the 94% False Alarm argument many times. My response is this provocative statement in response: “I want the False Alarm Rate to be 100%”
Using the ratio of Actual Alarms to False Alarm is a horrible way of measuring the efficacy of burglar alarms. It implies that alarm systems are almost useless. Under this measure the only way to improve from 94% to 80% or 40% is to increase the number of actual break-in’s where the alarm system worked. No one wants the crime rate to increase just to improve a ration of Actual v. False alarms.
Example 1:
10,000 Alarm users
100 False alarms
5 Actual attacks.
95% False Alarm rate
Example 2:
10,000 alarm users
100 False alarms
1 Actual attack
99% False alarm rate
Example 3:
100,000 Alarm users
100 False alarms
1 Actual attack
99% False alarm rate

You can play with the numbers all day long and you see that it is a poor way of determining the real goal of Alarm System Efficacy (ASE). Now it would take a real economist to determine ASE by weighing all the factors such as.
How many hours are alarms systems being used for the entire population?
How much does a False Alarm cost?
How much does an Actual Break-in cost to investigate, prosecute, convict and punish?
How much “Savings” does the total population of alarm systems bring?
What if there were no alarm systems…how much would the ensuing crime cost?

So, an economist can come up with a Ratio of Total Alarms Hours to number of False Alarms and Actual Alarms…I think you would have a number that show efficacy. I’m all in favor of more efficient alarm systems but it can’t be the existing False Alarm Rate as we know it now.

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SECURITYEMPLOYEE

I think it's more important to bring to the public's attention the police are not responding to a lot of these alarm calls. I work in the security industry responding to alarm events and you would not BELIEVE the amount of ACTUAL burglaries there are where the police cleared the scene as a false alarm. It is not up to the officer to assume that everything is okay instead of actually doing their job and going to check the location. Then we have have to deal with disgruntled clients because all of their personal belongings have been snatched all because the police would rather meet a false alarm quota than actually have the homeowners well-being in mind. When you think about it, what do POLICE actual do nowadays? I'm not referring to detectives who are actually the ones investigating the crime. Most police now only hide out in corners and cut waiting to catch someone and expecting us to break the law instead of keeping in mind they are here to protect. Why do you think there has been so much police violence in lately? Because they are given too much power and forget the actual purpose of their jobs. I work for an alarm company that monitors systems all across the country. A lot of these counties and dispatchers do not even cancel dispatches when we advise we have gotten word from the homeowner that every thing is okay. Why, you ask? So they can give them a false alarm fee. Some counties even go so far as to lie to the resident and say "if you had been registered you wouldn't have gotten a fine". False. There are people who never even had the P.D. dispatched to the residence and still got false alarm fees. Or what about the residence who have NEVER had a false alarm but are advised you get up to 3 before you begin getting fine. Wake up people. The police are here to PROTECT and SERVE. We have to start holding them accountable.

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Sean T

How much does it cost to pay a cop to sit on his ass? What is the cost difference between a cop sitting on his ass and driving to a false alarm?
Answer: The cost of gasoline.