One of the defining images of the early week of the coronavirus pandemic was the crowds of people looking to buy as much of certain items as possible, with toilet paper, canned produce and hand sanitizer all rapidly running out in stores around the world.
A new paper from the University of Technology Sydney (UTS) explored some of the psychology behind economic decision-making that might have contributed to our decision to hoard items. The researchers examine a range of possible explanations for hoarding, and indeed for the various other behaviors commonly seen during the pandemic.
“Understanding these economic, social and psychological responses to COVID-19 can help governments and policymakers adapt their policies to limit negative impacts, and nudge us towards better health and economic outcomes,” the researcher says.
Behavioral insights
Traditionally, hoarding is viewed in the context of saving excessively, which typically results from low consumer confidence, which reduces household spending to prepare for expected bad times.
“In economics, hoarding is often explored in the context of savings. When consumer confidence is down, spending drops and households increase their savings if they can, because they expect bad times ahead,” the researcher explains. “Fear and anxiety also have an impact on financial markets. The VIX ‘fear’ index of financial market volatility saw a dramatic 564% increase between November 2019 and March 2020, as investors rushed to move their money into ‘safe haven’ investments such as bonds.”
Suffice to say, the shift towards savings and investments makes a lot more sense than the hoarding of toilet paper did, hence why such behavior is harder to explain in traditional economic terms. Of course, behavioral economics reminds us that our decisions are not always rational, and are often influenced by a range of factors.
“Evolved instincts dominate in stressful situations, as a response to panic and anxiety,” the researcher explains. “During times of stress and deprivation, not only people but also many animals show a propensity to hoard.”
Following the herd
We are also highly likely to be influenced by the pack when making our choices. Often this can be fairly well reasoned, and doing so allows us to take mental short-cuts that save us time and energy.
They can, however, also result in us following others blindly, such as when we see crowds rushing to the supermarket to buy toilet paper, we experience a distinct fear of missing out and follow suit. These kind of social conventions are an important part of behavioral economics, and underline how rules and heuristics can serve an important purpose.
“Most people are generally law abiding but they might not wear a mask if they think it makes them look like a bit of a nerd, or overanxious. If there is a rule saying you have to wear a mask, this gives people guidance and clarity, and it stops them worrying about what others think,” the researcher concludes.
“So the normative power of rules is very important. Behavioral insights and nudges can then support these rules and policies, to help governments and business prepare for second waves, future pandemics or other global crises.”
