Written by Amanda Jaworsky
Logic and rationality are two key cornerstones to many aspects of economic theory, and while they are useful tools in understanding many economic decisions, there are times when consumers go rogue and exhibit distinctly irrational behavior. The most common source of this irrationality is emotional response: consumers often view economic events in terms of thoughts and feelings rather than logistical analysis. This is why monetary fines are sometimes ineffective at discouraging the behavior they are designed to penalize; instead of increasing the economic cost of undesirable behavior, they can actually mediate individuals’ guilt and cause them to avoid the behavior even less. In “Predictably Irrational: The Hidden Forces That Shape Our Decisions,” Areily describes a daycare that started fining parents for picking their kids up late. This fine actually resulted in parents showing up even later because they now felt justified in getting their “money’s worth” and showing up at whatever time was convenient. Contrastingly, pre-fine, parents felt guilty about showing up late and would put more effort into showing up on time (Giang 2012). These insights into irrationality, while helpful in understanding everyday consumer choices, are particularly helpful when applied to important economic events that push consumers to make very unusual choices, like the COVID-19 pandemic.
The COVID-19 pandemic had a variety of impacts on the American economy, but one of the most interesting was the increase in unusual and irrational economic behavior. This irrationality displayed itself in a variety of contexts, but the most noticeable among consumers were increased use of hand sanitizer (rather than increasing hand-washing), and hoarding of items like toilet paper and masks (Harokopus 2020). Most of these responses had reasonable psychological and emotional explanations: hand sanitizer is generally associated with fighting infections, while soap is associated with dirt, even though it is more effective at eliminating bacteria; wearing and keeping masks on hand feels like a more active response than simply engaging in everyday behaviors—like increased handwashing. Still, some of these responses have more complex explanations. Buying toilet paper in excess was a particularly intriguing and deeply irrational purchase: why would a respiratory-related illness create an incentive to stock up on toilet paper? As it turns out, there are actually two possible explanations. The first is that buying toilet paper (like the increased use of hand-sanitizer and mask-wearing) allows people to feel like they are doing something. It’s also easy to purchase in bulk, and relatively inexpensive (PsyPost 2020). The second possible reason, which is slightly more complex, is that people may have gotten SARS and COVID-19 mixed up. Initially, COVID-19 was frequently referred to as SARS-COV-2 since it is part of the SARS family of illnesses. While gastric unrest is relatively uncommon in COVID-19, it was prevalent among those afflicted by SARS, and it is possible that some consumers associated SARS-COV-2 with the 2003 SARS outbreak and, by extension, felt they needed toilet paper more than they actually did (Miri 2020).
Another way to consider these irrational behaviors is within a stimulus-organism-response framework. This refers to a psychology model which posits that complex human behavior can be understood by linking an environmental stimulus to a response which is influenced by a person’s specific internal thoughts (Harappa 2021). Using a questionnaire distributed to university students in Finland, it was found that there was a strong correlation between cyberchondria and unusual purchasing habits, as well as a strong correlation between perceived severity of COVID-19 and unusual purchasing habits. Cyberchondria is the relation between excessive amounts of time spent online and increased health anxiety. There was no correlation found between cyberchondria and the perceived severity of COVID-19, yet they both compelled individuals to make unusual purchases. The initial connection between cyberchondria and unusual purchases was direct; consumers suffering from cyberchondria were more likely to purchase excessive quantities of sanitizing products and food. The second connection between cyberchondria and unusual purchases was indirect; cyberchondria led to an intention to self isolate, and this intention to self-isolate triggered a greater likelihood of engaging in unusual purchasing activity. Similarly, the perceived severity of COVID-19 triggered an intention to self-isolate in some consumers, and this self-isolation again resulted in unusual purchasing activities. One of the most interesting aspects of this study is that this seemingly irrational behavior, upon closer examination, was actually quite rational considering the context. Individuals were encouraged to self-isolate in the beginning of the pandemic, so it’s very logical that they would begin to prepare by stocking up on goods that are typically bought in smaller quantities (Laato 2020).
Although many instances of irrational behavior associated with the pandemic have been short-lived—like toilet paper hoarding—there are some impacts that irrational behavior has had on the global post-pandemic economy that have yet to disappear. One place that has seen quite an economic shakeup is Indonesia, which has faced a lot of layoffs as a result of the pandemic. These large-scale layoffs have led to an increase in small and medium scale enterprise business competition. In a questionnaire study of multiple small and medium scale enterprises (SMEs) in the East Java province of Indonesia, it was found that some naturally-occuring irrational behavior within firms (like loss aversion) could be influenced by altruism. Essentially, researchers found that it was possible to take irrational responses and mediate them using an altruistic environment—one where coworkers are trusted and cooperation is encouraged. Ultimately, altruistic mediation resulted in more economically moral behavior amongst firms. Economic morality is generally described as economic behavior that takes into account the feelings and welfare of others, not just the cost-benefit analysis that underlies most economic theory. This attests to the fact that some irrational behavior can be manipulated to shift firm behavior away from the typical profit-maximizing behavior that is usually observed (Wahyono 2021).
Given the unique emotional and psychological responses to the pandemic, there are many explanations for the seemingly irrational consumer behavior observed during the early days of the pandemic. While many of these responses are the result of individuals trying to comfort themselves in a moment of uncertainty or common human error, being able to understand them is significant to predicting and even influencing economic change, as evidenced by the study of Indonesian SMEs. COVID-19 has not given us all the tools to accurately predict irrational behavior, but it has given us an idea of the kind of behavior that consumers will engage in when lockdowns and other similar crises occur, which is a valuable starting point.
References
Giang, Vivian. “12 Ways That People Behave Irrationally.” Business Insider. Business Insider, June 13, 2012. https://www.businessinsider.com/predictably-irrational-2012-6#we-dont-feel-as-remorseful-about-what-weve-done-when-we-have-to-pay-for-it-9.
Harokopus, Alexandra. “The Behavioral Science of COVID-19.” Yale School of Management, September 24, 2020. https://som.yale.edu/blog/the-behavioral-science-of-COVID-19.
Laato, Samuli, A.K.M. Najmul Islam, Ali Farooq, and Amandeep Dhir. “Unusual Purchasing Behavior during the Early Stages of the COVID-19 Pandemic: The Stimulus-Organism-Response Approach.” Journal of Retailing and Consumer Services. Pergamon, July 21, 2020. https://www.sciencedirect.com/science/article/pii/S0969698920304598#bib55.
Miri, Seyyed Mohammad, Fatemeh Roozbeh, Ali Omranirad, and Seyed Moayed Alavian. “Home.” Hepatitis Monthly. Kowsar, March 16, 2020. https://sites.kowsarpub.com/hepatmon/articles/102729.html.
“The Psychological Reasons People Are Panic Hoarding Toilet Paper amid the Coronavirus Pandemic.” PsyPost, March 16, 2020. https://www.psypost.org/2020/03/the-psychological-reasons-people-are-panic-hoarding-toilet-paper-amid-the-coronavirus-pandemic-56114.
“The S-O-R Model.” Harappa, August 3, 2021. https://harappa.education/harappa-diaries/what-is-sor-model/#:~:text=In%20short%2C%20the%20stimulus%20organism,that%20leads%20to%20a%20response.
Wahyono, Hari, Bagus Shandy Narmaditya, Agus Wibowo, and Januar Kustiandi. “Irrationality and Economic Morality of Smes’ Behavior during the COVID-19 Pandemic: Lesson from Indonesia.” Heliyon 7, no. 7 (2021). https://doi.org/10.1016/j.heliyon.2021.e07400.