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. Roger Jones says:

    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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  2. SECURITYEMPLOYEE says:

    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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