This paper uses epidemiological Susceptible-Infectious-Recovered (SIR) models to quantify the impacts of social and economic interactions in transmitting infectious diseases. When otherwise rational individuals misevaluate the effects of their activities, the risk of infection for others is greater. If those infected engage in full social and economic activity while those susceptible reduce their activity, then full recovery will only be achieved once herd immunity is reached years later. The alternative approach is to impose restrictions on those infected to drive their activity close to zero while only slightly reducing the activity of the susceptible. This second approach is socially optimal since it contains and eradicates the disease more quickly and with a much milder recession.