Armed Robbers Steal 600 Toilet Paper Rolls: Understanding Why Through Behavioural Economics
Part 2 of a series to explain why people do what they do during coronavirus: A case of social proof, stories & scarcity
Armed robbers steal 600 toilet paper rolls… Why are we seeing such irrational behaviour?
In recent years, we have become accustomed to feeling vulnerable from forces such as terrorism and trade wars. Extreme behaviours coming out of the evolving coronavirus situation are highlighting a new force: rapid changes in individual consumption. While this may seem small at an individual level, it becomes significant when fuelled by fear and added together with that of other consumers (not to mention an armed gang or two). The result is a strain on a system pushed to breaking point.
The Context: Buying & Boycotts
Let us step back and consider the extreme changes to consumer behaviour that have taken place so far:
1. People have significantly increased their consumption in some industries. For example, panic buying of toilet paper.
2. People have significantly reduced their consumption in other industries. For example, the avoidance of Chinese restaurants, resulting in some of them going out of business.
How can we explain this behaviour?
The intersection of three principles in behavioural economics can help: social proof, story bias and scarcity error.
Principle #1: Social Proof
Social proof relates to the idea that the more people who display a certain behaviour, the more appropriate this behaviour is perceived. When someone sees other people stockpiling toilet paper, this validates the course of action for them to do so.
For those avoiding Chinese restaurants, the logic may go something like this: “The virus originated in China” + “Chinese people eat in Chinese restaurants” = “I will avoid Chinese restaurants to protect myself”. As people see others demonstrate the same behavior, social proof comes into play to validate the shortcut and subsequent overreaction.
Principle #2: Story Bias
Stories are powerful and can lead to extreme behaviours. Images of a doomsday scenario on mass media and social media have led to a spread of fear, further leading to panic buying of toilet paper and other items.
In addition to a doomsday scenario, some tabloids have labelled the virus as the ‘China virus’. This has drummed up emotions that have resulted in further avoidance of Chinese restaurants (as well as more extreme reactions). Just as a government can bring another country to its feet with economic sanctions, a consumer boycott can have a telling impact on an industry.
Principle #3: Scarcity Error
One additional principle that can help to explain the run on toilet paper is scarcity error. When there is a perceived scarcity of toilet paper, one is panicked into feeling the need to stock up before it is too late.
The system we live in operates smoothly as long as confidence remains. Perceived scarcity can create panic and unsettle such confidence. A parallel can be seen when rumours surface about a bank’s liquidity. In this scenario, customers withdraw their savings at the same time, which leads to a self-fulfilling outcome. Confidence breeds confidence; a lack of confidence is contagious, perhaps even more contagious than the virus itself.
Closing Remarks
Sudden changes in consumer behaviour can have a profound negative impact. They can cause shortages of toilet paper, hand sanitisers and more important items that vulnerable people in society need. They can also affect the livelihood of people that run businesses, such as restaurants.
The consumer behaviours exhibited in the wake of coronavirus represent an overreaction. Our system is fragile in the face of such overreactions. The principles of behavioural economics identified above provide a starting point to allow us to understand the shortcuts that we are making and, therefore, how to avoid them.
Changes in consumer behaviour need not be a cause of instability; instead, they can be a force for good. For example, the choices that consumers make about the foods they consume can create a positive impact not only on their own health, but also on the health of the planet. The result can be sustainable business models and ecosystems.
What choices as a consumer will you make?
