Toilet Paper Mania
How behavioural economics can explain why people are stockpiling toilet paper.
One of the relatively predictable outcomes from Coronavirus — especially given likely impacts on global supply chains, travel plans, and government finances — has been the turbulence on financial markets. Few pundits, however, would have predicted that the Coronavirus epidemic would cause turbulence in the market for toilet rolls.
Shelves at Sydney's supermarkets were empty on Saturday (see photo). My first thought was that diarrhea must be a symptom of Coronavirus? But no — fever, shortness of breath, coughs, sore throats: Coronavirus causes the classic symptoms commonly associated with flu.
Even if people are buying toilet paper because it is a close substitute for tissues (and a roll is cheaper than tissues), why would people buy so much toilet paper in preparation for an illness that, for most healthy people, will be equivalent to a bad cold? Perhaps meticulous forward-planning is an explanation.
But numerous studies from behavioural economics show that most of us are prone to short-termism and procrastination — even when it comes to important, long-term decisions involving our health, pensions savings and house purchases. So it seems unlikely that anyone would plan that far ahead for one of the most mundane of purchases, especially as toilet paper is so bulky to store.
Psychologists and economists have suggested a range of explanations; a desire to control bodily functions in the face of fear of illness; the need for security and comfort in a stressful situation; preparing for shortages (Lucy, 2020; Yap, 2020). Other commentators hypothesize that loo roll mania is something like a fear of missing out, similar to the reactions seen during banking runs (Paloyo, 2020).
People worrying that they will be caught short, rush to the shops to buy as much loo roll as they can find — like savers rushing to the bank when they fear their bank will run out of money. The banking run explanation does not, however, explain why people are buying loo roll in such volumes. Also, losing a life's worth of savings to a banking run has life-changing implications in terms of poverty and hardship that are incomparable to the consequences of having no loo paper.
So what does behavioural economics and finance tell us about why someone would rush to spend excessive amounts on what is ordinarily a trivial item? The behavioural literature on speculative bubbles provides some potential explanations. One of the more colourful examples of a speculative bubble is Tulipmania: for a brief period in 1637, speculators got very excited about tulip bulbs. At the height of Tulipmania, one of the most prized bulbs, the exotic Semper Augustus, sold for around 1,000 florins — enough money to buy a smart townhouse, a small fleet of battleships or a drove of 3,000 pigs. Tulipmania is often cited as a classic example of extreme irrationality, but someone believing that they had a good chance of selling a tulip bulb for $1.1m, would not be stupid to buy it for $1m.
If people are prepared to spend the equivalent of millions of dollars on a tulip bulb, then why not spend 100s of dollars on loo rolls, especially if you think you can sell them for more? Toilet rolls are listed on eBay Australia at the moment — maximum price AU$1,000,000 for 600 rolls — that's AU$1,667 per roll.
Nonetheless, it is likely that only a minority of people are buying toilet rolls to sell them, and the fact that such large numbers of people are joining the crowd reflects our inbuilt instincts, as social animals, to follow others. Our propensity to follow others is complex. Some of our reasons for herding behind others are well-reasoned. Herding can be a type of heuristic: a decision-making short-cut that saves us time and cognitive effort. When other people's choices might be a useful source of information, we use a herding heuristic and follow others because we believe that they know more than we do.
When we see a long queue, outside a restaurant, for example, we may join that queue because we conclude that everyone else queuing knows how good the restaurant's food is. Other times, our reasons for following others may be less well-reasoned, driven more by peer pressure and group-think that any sort of reasoned process — for example mob violence. In his 1895 classic — The Crowd: A Study of the Popular Mind, French polymath Gustave le Bon explored how and why mobs form — hypothesising that mobs take on a life and personality of their own, separate and distinct from the individuals within it. Also, numerous experiments from social psychology have shown how blindly susceptible we can be to the influence of others, especially authority figures (Baddeley 2018).
This connects with key insights from behavioural economics about the different drivers of our decisions. Many decisions reflect a complex interplay of reason and emotion, each driven by different thinking systems. Our System 1 thinking is quick and instinctive; our System 2 thinking is slow and deliberative (Kahneman 2011). Herding probably reflects an interplay of the two (Baddeley 2018).
So if you are worrying about the empty supermarket shelves, take heart because the toilet roll market will probably stabilise. Tulipmania was short-lived and, if you can hold on, loo roll mania will be short-lived too. Alternatively, I know some people who have large stockpiles and may be willing to sell you some toilet paper for less than $1,667 a roll.
Copycats and Contrarians
Michelle Baddeley, Ph.D., is Associate Dean (Research) and Professor in Economics at the UTS Business School, University of Technology Sydney.
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