dotlah! dotlah!
  • Cities
  • Technology
  • Business
  • Politics
  • Society
  • Science
  • About
Social Links
  • zedreviews.com
  • citi.io
  • aster.cloud
  • liwaiwai.com
  • guzz.co.uk
  • atinatin.com
0 Likes
0 Followers
0 Subscribers
dotlah!
  • Cities
  • Technology
  • Business
  • Politics
  • Society
  • Science
  • About
  • Society

A Toilet Paper Run Is Like A Bank Run. The Economic Fixes Are About The Same

  • March 6, 2020
A Hong Kong pharmacy orders in extra toilet paper in early February, as people panic buy. Jerome Favre/EPA
Total
0
Shares
0
0
0

Panic buying knows no borders.

Shoppers in Australia, Japan, Hong Kong and the United States have caught toilet paper fever on the back of the COVID-19 coronavirus. Shop shelves are being emptied as quickly as they can be stocked.

Shutterstock

This panic buying is the result of the fear of missing out. It’s a phenomenon of consumer behaviour similar to what happens when there is a run on banks. A bank run occurs when depositors of a bank withdraw cash because they believe it might collapse. What we’re seeing now is a toilet-paper run.

Coordination games

A bank holds only a fraction of its deposits as cash reserves. This practice is known as “fractional-reserve banking”. It lends out as much of its deposits as it can – subject to a banking regulator’s capital-adequacy requirements – making a profit from the interest it charges.

If every customer simultaneously decided to withdraw all of their deposits, the bank would crumble under the liability.

Why, then, do we not normally observe bank runs? Or toilet paper runs?

The answer comes from Nobel-winning economist John Nash (played by Russell Crowe in the 2001 movie A Beautiful Mind). Nash shared the Nobel prize in economics for his insights in game theory, notably the existence of what is now called a “Nash equilibrium” in “games”.

Both banking and the toilet-paper market can be thought of as a “coordination game”. There are two players – you and everyone else. There are two strategies – panic buy or act normally. Each strategy has an associated pay-off.

If everyone acts normally, we have an equilibrium: there will be toilet paper on the shop shelves, and people can relax and buy it as they need it.

But if others panic buy, the optimal strategy for you is to do the same, otherwise you’ll be left without toilet paper. Everyone is facing the same strategies and pay-offs, so others will panic buy if you do.

The result is another equilibrium – this one being where everyone panic buys.

Preventing coordination failure

So either no one panic buys (a successful coordination) or everyone does (a coordination failure).

The fear of everyone else panic buying has made some people panic buy as well. But those who are panic buying are not acting irrationally. They’re not stupid! They are executing an optimal strategy because the fear has a basis in reality: many people have experienced going to supermarkets and finding empty shelves.

Obviously, though, only one of these equilibria is desirable. So what can we do to prevent coordination failure?

One solution is a market mechanism – allowing the price of toilet paper to increase to reduce demand. This is unlikely to happen, though, given the potential backlash associated with “price gouging”.

There are two other solutions.

The first is for the government to step in as guarantor.

In 2008, for example, the market crash engendered by the subprime mortgage crisis left multiple Australian banks vulnerable to depositor runs. In response, the Australian government announced a guarantee scheme for deposits. Depositors, assured the government would cover their losses even if their bank collapsed, no longer had the fear of being caught out by not withdrawing their savings.

In the case of toilet paper, the government acting as guarantor might involve holding a strategic stockpile of toilet paper. But all things considered – from logistics to costs – this probably isn’t a very good idea.

The second solution is to ration the commodity – putting limits on the amount a customer can buy. Imperfect though these buying limits are, they are feasible, as shown by the restrictions put in place by Australia’s supermarkets.The Conversation

 

Alfredo R. Paloyo, Senior Lecturer in Economics, University of Wollongong

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Total
0
Shares
Share
Tweet
Share
Share
Related Topics
  • Bank Run
  • Consumer Behaviour
  • Coronavirus
  • COVID-19
  • Game Theory
majulah

Previous Article
  • Lah!

The 6 Powerhouses Of The Investment World

  • March 6, 2020
View Post
Next Article
  • Cities

The 100 Most Solar Cities In America

  • March 6, 2020
View Post
You May Also Like
View Post
  • Cities
  • Lah!
  • Society

NUS Computing Establishes Sea Olympiad Scholarship To Attract And Nurture Top Talents In Computer Studies

  • dotlah.com
  • February 27, 2022
View Post
  • Cities
  • Lah!
  • Society

Joint Study: Diverse Leadership Brings Better Firm Performance

  • dotlah.com
  • February 23, 2022
View Post
  • Lah!
  • Society

Community And Mentorship Help Women Entrepreneurs Thrive

  • dotlah.com
  • November 23, 2021
View Post
  • Lah!
  • Society

ST Engineering Champions Employee Wellness, Raises Funds For Charity And Launches Women Support Group

  • dotlah.com
  • November 14, 2021
View Post
  • Lah!
  • Society

NUS Honours 40 Alumni For Outstanding Contributions To Alma Mater And Society

  • dotlah.com
  • November 7, 2021
View Post
  • Cities
  • Lah!
  • Society

The COVID-19 Pandemic Has Made Many Singaporeans Adopt Better Financial Habits

  • dotlah.com
  • November 3, 2021
View Post
  • Lah!
  • Society

A Cleaning Revolution: How JCS-Echigo Partnered A*STAR To Clean Faster And Smarter

  • dotlah.com
  • October 16, 2021
View Post
  • Lah!
  • Society

Singapore 100 Women In Tech 2021

  • dotlah.com
  • October 16, 2021


Trending
  • 1
    • Lah!
    • Science
    NUS Scientists Find New Mechanism Of Cancer Formation
    • January 15, 2021
  • 2
    • Technology
    Singapore Renews MOU On Cybersecurity Cooperation With Australia
    • March 24, 2020
  • 3
    • Cities
    A321 Converted Freighter Receives EASA Supplemental Type Certification
    • February 26, 2020
  • 4
    • Society
    7 Dangerous Myths About Coronavirus Busted By The World Health Organization
    • February 11, 2020
  • 5
    • Business
    • People
    Fast Loans With Bad Credit: 5 Best Companies To Go To
    • August 27, 2020
  • 6
    • Environment
    • People
    Here’s Why The WHO Says A Coronavirus Vaccine Is 18 Months Away
    • February 15, 2020
  • 7
    • Technology
    IMDA Partners With SUTD To Deepen Data And AI Capabilities To Drive Continuous Innovation For Smart Estates
    • November 13, 2019
  • 8
    • Cities
    • Lah!
    ST Engineering Receives AML-STC For The Installation Of Aviation Clean Air’s Proactive Air Purification Solution On Airbus Platforms
    • November 27, 2021
  • 9
    • Lah!
    • Society
    Temperature Screening To Be Implemented At The Land Checkpoints From January 24, 2020
    • January 24, 2020
  • 10
    • Lah!
    New Study Claims Racial And Religious Harmony Is Flourishing In Singapore
    • August 12, 2019
  • 11
    • Cities
    Cross Island Line – Punggol Extension: Better Rail Connectivity For Punggol And Pasir Ris Residents
    • March 11, 2020
  • 12
    • Technology
    Miniature Robots Controlled By Magnetic Fields
    • June 16, 2021
Trending
  • 1
    Why climate summits fail – and three ways to save them
    • October 21, 2025
  • Bluetooth speakers 2
    Best Bluetooth Speakers Under $200 (2025 Edition)
    • October 16, 2025
  • 3
    Apple Vision Pro upgraded with the powerful M5 chip and comfortable Dual Knit Band
    • October 15, 2025
  • 4
    Apple unveils new 14‑inch MacBook Pro powered by the M5 chip, delivering the next big leap in AI for the Mac
    • October 15, 2025
  • 5
    Apple introduces the powerful new iPad Pro with the M5 chip
    • October 15, 2025
  • 6
    Singapore’s national identity excludes those who don’t look like a ‘regular family’
    • October 9, 2025
  • Smart Watch 7
    Best Smartwatches, Your Gateway to Health Monitoring and Everyday Use
    • October 5, 2025
  • Cooking pots and pans 8
    Best Pots and Pans 2025: All-Season, All-Purpose Picks for Every Kitchen
    • September 23, 2025
  • 9
    Politicians love comparing NZ’s economy to Singapore or Ireland – but it’s simplistic and misleading
    • September 21, 2025
  • Kitchen Knives - Best All-Around Picks in 2025 10
    Kitchen Knives : The Surgeons of Cooking – Best All-Around Picks in 2025
    • September 15, 2025
Social Links
dotlah! dotlah!
  • Cities
  • Technology
  • Business
  • Politics
  • Society
  • Science
  • About
Connecting Dots Across Asia's Tech and Urban Landscape

Input your search keywords and press Enter.