Behavioral Economics and the Pandemic

Hello All.

I write to you from my home office as our Governor has issued strict guidelines about leaving our home. There is a triage hospital that has been built locally (minutes from my home) that allows us to drive up if we feel sick to see if we are eligible for a test. My very good friend and my brother have tested positive for COVID-19. I’d say I’m in the epicenter of the crisis. With all that’s going on, I have taken the opportunity to learn from the crisis and am trying to apply what we are learning towards behavior that I am witnessing locally.

This week I wanted to find an article where the authors use a gain (loss) frame to present information. I will be discussing the importance of behavioral studies in combating the coronavirus and specific messaging that governments are using.

I’ve been reading a few articles by Peter Lunn. He is the founder and head of the Behavioural Research Unit at Ireland’s Economic Social Research Unit. I have also read articles involving the team of behavioral economists that are working with the UK as well. “Underpinning the UK government’s approach is the advice of a little-known group of advisers who are experts in behavioural psychology: the behavioural insights team. This “nudge unit”, as it is widely known, was established by David Cameron a decade ago to apply nudge theory within government (Rea, 2020)”

So how are behavioral economists inducing the public, and particularly the younger generation to comply with hygiene and social distancing recommendations. I have briefly listed a few below.

Spotlight Effect – In some buildings and offices, they are placing a big red stop sign as soon as you walk in. Next to the sign in a brightly colored hand-sanitizing station. Beyond the station will sit the receptionist that will ask you, in a very loud manner if you had washed your hands at the station. The big bold sign, the brightly colored hand-washing station and the receptionist asking point blank if you washed your hands placed a giant spotlight on your actions. Researchers have found that the threat of public shame through non-compliance increases the tendency for people to practice personal hygiene.

Gain vs. Loss - Researchers have found that younger people have not been entirely responsive to calls for social distancing when the risks of doing so apply to them (Kwon, 2020). They feel young and invincible and they believe they will overcome the effects of the virus should they catch it. But when framed that the spreading of the virus will hurt the elderly people that they love (parents and grandparents) they are more receptive to social distancing. That may be one of the reasons the messaging has been as such – protecting the elderly through responsible actions.

Anchoring – There has been research on how to release the estimates of expected cases and potential death count to the public. Researchers have found that when given a range of numbers – we expect between x and x number of total cases – that people will anchor to the mid-point of the range. So, by narrowing the range, the public can be nudged to a realistic number.

Overconfidence – In a recent study by led by Daniel Bennett of USC Dornsife and Wändi Bruine de Bruin of the USC Price School of Public Policy, they surveyed 2,436 U.S. residents (Miller, 2020). The one point that stood out to me is the median survey respondent saw a 10% chance of catching the virus. I’m not sure what geographical region this was conducted but based on preliminary scientific numbers, there is a more than likely chance that greater than 10% of the population could contract the virus. What I also find strange in this survey is that while the preliminary mortality rate for the virus has hovered around 2%, the median respondent perceived a 5% risk of dying from the virus.

Last story about nudge. I can across an article that showed how a Danish supermarket stopped people from hording their health supplies, i.e. hand-sanitizer. For one bottle of sanitizer the price is 40 DDK (about $4.09), but the price jumps to 1,000 DKK ($95.00) for two bottles. I was thinking about this article as I was reading Predictably Irrational (Ariely, 2009). More specifically chapter 2 – the Fallacy of Supply and Demand. Under normal conditions, the thought of paying even $4.09 for a bottle of sanitizer that used to be widely available in the dollar store is irrational. But the $4.09 in our current crisis is the new normal – so much so that at that price, people were hording the stuff. But I suppose price inelasticity has its breaking point and they determined $95.00 per bottle would do the trick.

Joseph S. Kalinowski, CFA

Ariely, D. (2009). Predictably Irrational: The Hidden Forces that Shape our Decisions. New York, N.Y.: Harper Perennial Modern Classics.

Bicer, A. (n.d.). How can governments use behavioral science in fighting coronavirus? Retrieved March 23, 2020, from https://www.aa.com.tr/en/latest-on-coronavirus-outbreak/how-can-governments-use-behavioral-science-in-fighting-coronavirus/1766815#!

Hahn, U., Chater, N., Lagnado, D., Osman, M., & Raihani, N. (2020, March 16). Why a Group of Behavioural Scientists Penned an Open Letter to the U.K. Government Questioning Its Coronavirus Response. Retrieved March 23, 2020, from https://behavioralscientist.org/why-a-group-of-behavioural-scientists-penned-an-open-letter-to-the-uk-government-questioning-its-coronavirus-response-covid-19-social-distancing/

Kwon, D. (2020, March 19). Near Real-Time Studies Look for Behavioral Measures Vital to Stopping Coronavirus. Retrieved March 23, 2020, from https://www.scientificamerican.com/article/near-real-time-studies-look-for-behavioral-measures-vital-to-stopping-coronavirus/

Lunn, P. (2020, March 20). How behavioural science could help us stop coronavirus. Retrieved March 23, 2020, from https://www.prospectmagazine.co.uk/science-and-technology/coronavirus-hand-washing-uk-lockdown-sanatizer

Miller, J. (2020, March 20). Bracing for coronavirus, U.S. residents are changing their behavior. Retrieved March 23, 2020, from https://news.usc.edu/166834/coronavirus-survey-usc-behavior-changes-health-economic-fallout/

Rea, A. (2020, March 12). Why aren't we on lockdown for coronavirus yet? Retrieved March 23, 2020, from https://www.newstatesman.com/politics/uk/2020/03/why-aren-t-we-lockdown-coronavirus-yet