Justin Wolfers, an Australian economist and professor at the University of Michigan, jested in an interview with Forbes magazine that the solution is obvious. Governments around the world need to establish a “national toilet paper reserve” similar to what the US government did in the 1930s to stop a run on banks. South Africans are well aware of the similarities particularly those that held Saambou accounts in 2002.
These cognitive distortions stem from heuristics or thinking shortcuts. Marketers in the Western world have done a great job at reinforcing a belief system that buying stuff solves our problems. The challenge is that we’re not entirely sure of exactly what the extent or magnitude of these problems is. Furthermore intense media scrutiny that requires minute-by-minute content generation for a flow of news is destined to provide mixed messages as the story evolves over time depending on when in time you consume the news and how often.
The result is a perceived lack of control in a particularly uncertain time. We know that belief in our ability to exert control over our environment is critical to well-being. It has been argued that the perception of control is not only desirable, but likely a psychological and biological necessity. What we’re doing here in response to uncertainty is taking a little control over a situation through problem-solving (buying stuff) and one that requires little cognitive strain. We don’t need to think too much about buying toilet paper.
Humans are cognitive misers. This makes us prone to something called the affect heuristic where we can make a quick judgement on something based on our feelings towards the stimulus without the time and effort it takes for more sensible evaluation. So it’s less about the facts themselves and more about how we feel about the situation. Thousands of South Africans die from the common flu virus every year not even to mention HIV, yet these have become familiar which often results in apathy. The recency effect will place a disproportionate effect of mortality rates on the most recent disease making it appear more dangerous.
Pair the above with activity on social media platforms (like Facebook and even WhatsApp) ablaze with memes, photos that celebrate finding these scarce goods, jokes and a fair number of half-truths and the most sensible thing to do appears to be to reduce risk by following the herd.
Another angle comes from Richard Thaler, American economist and winner of the Nobel prize in economics in 2017, who proposed that we get a second type of utility or benefit when making purchases. The first is economic or consumption utility which is all about perceived value when compared to a selling price. Thaler however proposed that there is a powerful second type of benefit called transaction utility. In a nutshell this is the feeling we get that we are particularly smart for finding or discovering a bargain. When transaction utility is very high we’ll happily buy something that has little consumption utility for us because the benefit we’re getting rests not in it solving a problem but in the fact that we found a particular solution in the first place.
Whatever the rhyme or reason, what does this noise mean in the long run? Retailers will benefit from the utility of panic buying in the short-run of course but naturally this will reverse. People have a lot of toilet paper but won’t need more and so long-term normalisation in sales is inevitable. The ripples of politics, economics, social and technological change are just that. We need to remember that these require little attention and even less action on our part as we continue with slow and steady march towards our long-term investment goals.
