Friday, 20 March 2020

The Media and Panic Buying

The problem with seeing pictures of empty shelves is that it just makes panic buying worse. The media have an important role to play in this but first let's try and understand why panic buying is a problem. In short: panic buying means resources are not allocated to those who need them.

Imagine if there were only two people in a village, Helen and Jack. Every week they go to the village shop and on the shelf there are 6 cans of soup.

Each week, Helen goes in and usually buys 1 can of soup and Jack goes in and buys 2 cans of soup. Sometimes they may buy more or sometimes a bit less. However, the important thing is the shopkeeper roughly knows how many cans of soup she needs on her shelf. Each week she will replace the ones that got bought and keep the shelves full with 6 cans.

Now let us say suddenly something happens like the coronavirus, people are worried that they may need to stay indoors. Jack is concerned and decides to buy 6 cans of soup so he has enough soup for 3 weeks. Helen comes into the shop afterwards to find the shelves completely empty.

So the problem is not that there isn’t enough soup, it is that Jack has enough soup for 3 weeks and Helen does not have any soup at all.

But there is an important psychological effect here that is not demonstrated in the above example. When we go to the shops, we take visual clues in order to estimate how large the total supply of the soup is.

Consider the case if Helen comes into the shop first and sees the usual 6 cans on the shelf. In this example, she is worried about the virus and Jack is not. As Helen is worried, she buys 3 cans rather than her usual 1.

Jack comes in after Helen, he isn’t worried about the virus but the shelf is looking a bit empty. Usually there are about 5 or 6 cans on the shelf when he comes in but now there are only 3! So he is now concerned something may have happened to the total amount of soup and so decides to buy the 3 remaining soup cans that are left on the shelf rather than his usual 2. As there is now no soup on the shelves, if anyone else comes into the shop looking for soup they will have no soup!

So what can we do to stop this? Well let’s say the shop keeper had some spare cans of soup in the back, as soon as Helen bought 3 she could have restocked the shelf before Jack came in. As Jack isn’t so worried about the virus when he comes in, he sees a shelf full of soup and only buys his usual 2. Even if he has heard a rumour that people are panic buying soup, seeing a full shelf will mean he is still less likely to buy more soup. Seeing a full shelf shelf makes him question the rumour as he has no need to believe otherwise.

Although supermarkets do have some spares in the back, most of their cans are in warehouses where there are giant stacks of soup cans that go on for miles. The problem with panic buying is not that there isn’t enough soup to go round, but it is that the delivery drivers can’t get the soup to the stores quick enough to restock the shelves. When we see empty shelves we wrongly assume that soup is running out. The only thing that is running low is the soup on the shelves, not the soup the total amount of soup the super markets have.

So what can the media do? Well the media have a duty to cover important events like when people panic buy. But they also have a duty to cover it responsibly. By showing empty shelves this triggers the same psychological response as Jack had in the previous example, it makes us think that something is in short supply. 

So rather than showing empty shelves and having a random guy in a high-vis vest saying “don’t panic buy”, it would be better so show pictures of these giant warehouses full of stuff and explain how their supply chain works.

So if by seeing these gigantic warehouses full of stuff on the news and enough people believe* (correctly!) that there is enough supply of food, then the problem of empty shelves will go away!





*A similar problem happens sometimes when people are worried a bank is going to run out of money. This causes a bank run and people start queuing to take their cash out. One way to solve this bankrun is for the government to come in and back the bank and say they will supply all the short-term cash they need. As a result, people no longer think the bank will run out of money and so stop queuing up at cashpoints. Amazingly, by the government SIMPLY announcing this decision solves this problem, they may not even have to act!

2 comments:

  1. Isn't the issue here also the fact that people are stockpiling because they have a very legitimate worry that they might have to self quarantine for a fortnight, and thus are trying to have enough food in for that eventuality?

    Also, as I understand it, there's only ever enough food in the system for a couple of weeks anyway. Out supply chains are long and brittle, so who knows what cascading failures we could see in the coming months. Yes the pictures of empty shelves in twitter don't help, but there's more than just that.

    Like, I think people are by and large acting rationally in an individual sense, but obviously this then leads to the classic prisoners dilemma in which we're now trapped. The only solutions to this are going to be either rationing or huge price increases.

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    1. All these are excellent points! Yes, worrying about have to self quarantine is completely rational. I didn't cover this to limit the word count but I agree. Also, as we are likely to shop less, demand for longlife goods will increase over shorterm goods which is what we really want.

      In terms of the supply chains point, this is the other thing I think the news could be better at. There are quite a lot of contingency plans since the last SARs outbreak explaining how these things work and is another part of the process. Just telling us "everything is fine" is not good enough.

      In terms of your last point, I think rationing is an option, although I would prefer us to fill the shelves as much as we can before then. Price increases are little more tricky but one worry is people actually start buying more of them because people think it is a signal that the stock is running low which is not the case. This is related to Giffen goods in economics.

      Thanks for commenting!

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