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 below.)  

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?

Audio Transcript

Kai Ryssdal: Time now for a little Freakonomics Radio. It's that moment every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog...

Alarm noise

Stephen Dubner: Oh geez, Kai. I'm sorry. I'm sorry. Fight through it.

Ryssdal: Books and the blog of the same name. It is of course the hidden side of everything.

Alarm noise

Dubner: Let me find the button, Kai. I got it. I got it. Apologies.

Ryssdal: All right. So what are you doing?

Dubner: I'm sorry. We just put a burglar alarm in the studio here. It goes off like every five minutes. I'm so sorry.

Ryssdal: One would think you'd be able to turn it off when you're on the radio, dude.

Dubner: You would, but it's not just me, Kai. Do you have any idea what the false alarm rate is for burglary alarms in this country?

Ryssdal: Well I'm just going to guess that you're trying to make a point here, so I would say high. Yes?

Dubner: The data show that false alarms account for 94-99 percent of all alarm calls.

Ryssdal: God. Wow. I mean, that's great that they're false alarms, but it's bad that they're false alarms. Right?

Dubner: You know who hates it even more than the homeowners are the police. Listen to Craig Steckler. He's the police chief of Fremont, Calif. When he realized that 98 percent of these alarm calls to his department were false alarms, he started to figure out what this was actually costing.

Craig Steckler: The officer's time, we figured that it was around $67 for each officer to respond, two officers per call. Then the dispatch time was around $12 for every dispatch call. So we took those figures and multiplied it by our number of alarms and came up with this figure of $664,000-something. Pretty outrageous.

Ryssdal: Geez. Wow. That's just a lot of false alarms.

Dubner: We talked to Simon Hakim, an economist at Temple who's been studying this issue for a long time. He says that in a given year, U.S. police respond to more than 35 million alarm activations. Now again, Kai, something like 95 percent of them are false alarms and the cost is about $2 billion.

Simon Hakim: Most of the time, it's not a burglar that came to your house, but it's false activation. So the 94-99 percent, you get a personal service. It's not enhancing in any way or form the security of the community.

Ryssdal: So that phrase he used, "false activation," what does that name?

Dubner: Well one industry expert we talked to puts about 75 percent of the blame on user error. So of course the industry would blame us stupid users. And then there's the weather and power surges, and also let's not forget there are actual burglars out there, about 2 million burglaries a year in the U.S.

Ryssdal: So do these alarm systems deter 'em? Would it be 5 million without 'em?

Dubner: Hakim says that yes, that alarm systems to deter burglars to some degree. The sign in the yard and the threat of the alarm and the police. So we've got a deterrent effect, which just happens to have an extraordinarily high false-positive rate.

Ryssdal: What does the alarm industry say? I mean, they're obviously making a lot of money selling these things that don't work 95 percent of the time.

Dubner: Well, good point. We talked to Ron Walters with the Security Industry Alarm Coalition, which helps deal with the complaints about false alarms from the police departments.

Ron Walters: It's our No. 1 priority. This is the one issue that we have decided has to be addressed.

Dubner: So they're proposing better design for alarm keypads. More video monitoring to verify whether an alarm call's legit. But if you think about how the incentives are laid out, Kai, you do have to wonder how hard the alarm companies really need to try. Here's Chief Steckler again.

Steckler: They have a business model that sells a product that gets serviced by a public entity that they don't even pay to do the service. So it's money in their pocket. Why should they change?

Ryssdal: Yeah, that's the total skeptical/realist view. But he's got a point, right?

Dubner: He does have a point. Financial analysts say that industry leader ADT, for instance, has an operating margin of about 25 percent on roughly $3 billion on annual revenues. So these false alarms pose what economists call a negative externality. That is, the provider charges you for the service, but then they pass along a big part of their costs to someone else. In this case, the police departments and the taxpayers who support them.

Ryssdal: Right. So what are we supposed to do about it? What are the solutions?

Dubner: Well it's probably a good idea to make the alarm companies more accountable in some fashion, including having them make alarms that don't fail so often. In the meantime, some cities have started to penalize homeowners for repeated false alarms -- cash fines, even misdemeanor charges. As for me, I think I'm just going to ditch my new alarm that seems to go off every five minutes. I'm going old school. Here Kai, so if this new alarm of mine would actually keep you out of my studio.

Dog growling

Dubner: Go ahead. Make my dog's day, Kai.

Ryssdal: I've been to your house. I know you don't have a dog, get out of here Mr. Upper West Side. Stephen Dubner, Freakonomics.com is the website. See you in a couple of weeks.

Dubner: Talk to you soon, Kai. Thanks.

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  1. Sean says:

    Point is taken, I have to take out the battery to my smoke detector whenever I cook. But this podcast seems too relevant to the Kenneth Chamberlain case going on right now. The 68yr old veteran was sleeping in his apartment in White Plains, NY when he accidentally triggered his life-alert button which sent one of these false 911 alarms. The police are dispatched just in case, like when there is an injury the fire department for some reason arrives before the ambulance.
    Chamberlain told the police not to come in and that he was fine, but they were indignant about having been called for a false alarm and continued to use this as an excuse to force their way in with a bullet-proof riot shield, taser, and shotguns with bean-bag–later live–rounds. Statistically, there is reason to be angry about the way the response system works, but there’s a clear need to distinguish that from citizen responsibility.

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    • Enter your name... says:

      The fire department arrives first because there are usually more of them than ambulances and they’re almost always positioned better. Furthermore, a lot of them (all of them in my local town) are trained every bit as much as the ambulance crew in emergency medicine, so the only unique medical service that the ambulance provides is the actual transportation. If the FD can have you ready to strap onto a stretcher before the ambulance arrives, then you get transported faster.

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    • J says:

      Not familiar with this particular case but as you describe it… the cops may or may not have been indignant, but if they receive a distress code and the person who sent it is on the other side of a door they refuse to open saying everything’s OK, cops have no choice but to assume there’s something wrong. Put yourself in their position: somebody sends a distress call to EMS. When police arrive, the person who sent the distress call refuses to open their door and tells them everything’s OK and to go away. As a police officer, would you not at least vaguely suspect the person on the other side might be misleading you, probably against their will? And if you do assume there’s a hostage situation, you don’t send Reed and Malloy in; you send in people trained to take down a hostage taker the moment the door opens. Cops don’t magically know it’s a false alarm and are pretty much required to assume it isn’t until they verify otherwise.

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      • Sean says:

        The elderly man had a life-alert button for medical reasons. Police could see him and that nobody else was in the room. His niece came down from upstairs because she heard the commotion and police told her to leave. Details take us into a discussion of the militarization of police in America, which is not related to the podcast but most of those details can be found here: http://www.democracynow.org/2012/4/6/new_details_emerge_over_police_fatal
        The more relevant point might be that abuse on either side is the problem, either expecting dispatch calls to be a granted luxury or authorities taking their authority to be greater than the needs of the taxpaying citizen.

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  2. DH says:

    I have to agree with several of the posts about the cost versus what would the cops have been doing otherwise? What is the economist take on that? If a city pays 10 cops to patrol what is the additional cost if they actually do work instead of sitting in a doughnut shop?

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  3. Eric Van Hoesen says:

    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.

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  4. Marty Joyce says:

    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.

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  5. Hideyo Imazu says:

    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.

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  6. FactChecker says:

    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?

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  7. AZ LEO says:

    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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  8. Chris says:

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

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