How Panic Buying related to Game Theory
The phenomenon of consumers flocking to markets to urgently stock up items is termed “panic buying”. Panic buying happened at the beginning of the COVID-19 outbreak. In spring 2020, the price of toilet paper on eBay sky-rocketed, accompanied by empty shelves at grocery stores. A similar phenomenon happened before during the 2011 Fukushima Daiichi Accident. As this article from 10 years ago illustrates, worried Chinese shoppers stripped stores of salt because of the false belief that it can guard against radiation exposure, even though it is unlikely to reach the country. “The panic-shopping was triggered by rumors that iodized salt could help ward off radiation poisoning – part of the swirl of misinformation crisscrossing the region amid Japan’s nuclear emergency”. However, regular table salt does not contain enough iodine to block poisoning. Rumors also affected other Asian countries like Vietnam.The desire and panic of buying gradually fade away when people notice the situation is getting better or someone points out the crowd is wrong. Game Theory does a great job at explaining the psychology of customers.
The decision of buying items in a socially responsible manner, or hoarding them, is related to game theory. According to the article, Stiff argues that people’s payoff in some situations is based on both what they do and what others do. For example, getting food from the market is dependent on us and other shoppers mutually acting sensibly, which applies to the real-world example of expensive toilet papers during COVID-19 and salt shortage in China in 2011. This relates to the concept of Game theory and Prisoner’s Dilemma we’ve covered previously in class. Prisoner’s Dilemma is one typical kind of Game Theory which the two subjects receives higher cost if they only care about their own interest. Even though two prisoners both choosing not to confess will give them the seemingly best choice, it will not happen because both prisoners care about their own interests too. In the end, the Nash equilibrium arrives at the two prisoners both choosing to confess. Applying in this scenario, prisoner A will be other people and prisoner B will be me. If others don’t flock to buy table salt, then I don’t need to rush because there will always be sufficient table salt on the shelves. However, if others flock to buy table salt, then I need to rush to buy table salt or else I will get a higher cost for table salt. Buying table salt if other people start buying is my optimal strategy. Since everyone thinks in this way, this situation eventually results in “panic buying”, thus explains why so many people rush to buy toilet paper and salt in the two cases.
The essential point to stop panic-buying is to reduce self-interest. In Stiff’s article, he mentions one way of doing it is to emphasize the feelings of kinship between shoppers. Another way is “to play down the idea that everyone is panic-buying”, which means newspapers and media should not emphasize the act and should not focus on the specific behavior of certain groups of people. Stiff also states that introducing strong punishment can effectively reduce people acting selfishly. Overall, this real-world phenomenon explained by Game Theory is heavily based on an individual’s thoughts and consumer psychology, which the effects can differ from individual to individual.
Sources:
https://www.theguardian.com/world/2011/mar/17/chinese-panic-buy-salt-japan
https://uk.news.yahoo.com/really-more-petrol-toilet-paper-090642193.html
https://theconversation.com/the-game-theory-of-panic-buying-and-how-to-reduce-it-134107