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“Irrationality During the Pandemic”

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“Irrationality During the Pandemic” Final paper in: Pandemics in an Unequal World: Learning from COVID19 On the subject: “Irrationality during the Pandemic” by Panagiotis Paris Hiotis Professor: Sakiko Fukuda-Parr Fall 2020 Table of Contents Abstract 2 Introduction 2 The dual system theory 4 1. Action bias 5 2. Affect heuristic 6 3. Choice overload/Decision fatigue/Ego depletion 6 4. Confirmation bias 8 5. Framing effect 8 6. Halo effect 10 7. Messenger bias 11 8. Optimism bias - Overconfidence 12 9. Present bias 13 10. Social proof – Herding 14 11. Scarcity heuristic 15 12. Status quo bias 16 Nudges 17 Conclusion 19 Bibliography 20 1 Abstract In this paper, I will be examining the most common cognitive biases that are responsible for the many irrational behaviors that have taken place during the Covid-19 pandemic. I will be discussing irrationality during the pandemic, through the lens of the following biases and other heuristics: Action bias, affect heuristic, choice paralysis, confirmation bias, framing effect, halo effect, messenger effect, optimism bias - overconfidence, present bias, social proof – herding behavior, scarcity, status quo bias and defaults. I will also be mentioning the importance of nudges as well as how people take advantage of dark nudges (sludges) during these times of uncertainty. Examples will be given for irrational behavior caused by each of the following behavioral economics concepts, with some information on how to overcome these cognitive biases. Introduction In the past year, the Covid-19 pandemic has claimed many lives, and we have all faced many challenges. Amidst the chaos, certain actions gained attention and were labeled as “irrational”, examples including the hoarding of toilet paper1, increased spending and panic buying of products2, or simply not adhering to the protective measures and having large concerts and 1 https://eu.azcentral.com/story/opinion/op-ed/elviadiaz/2020/11/11/another-toilet-paper-shortage-hoarding- wont-save-you-covid-19/6250934002/ 2 https://voxeu.org/article/spending-dynamics-and-panic-buying-during-covid-19-first-wave 2 gatherings without any usage of masks and with no implementation of social distancing3. This behavior seems illogical, but with the help of behavioral science and behavioral economics, we have the necessary tools to dissect it, explain what causes it, and discuss how we can avoid similar irrational acts. In 1950s, Herbert Simon, utilized the term “bounded rationality”, by explaining that the human brain has a limit in terms of thinking capacity, information storing and processing. Forcing us to use certain heuristics, or mental shortcuts, to make some of our decisions. Heuristics4 are mental shortcuts, or commonly known as “rules of thumb”, that we utilize in order to simplify our decisions and take out some of the cognitive load of everyday thinking. Some of these heuristics include the availability heuristic, the affect heuristic and representativeness. Even though the aforementioned heuristics help with simplifying our decision-making process, they often are responsible for leading us to what is known as a cognitive bias. Cognitive biases are systematic errors in thinking that deviate from the rational perspective of formal norms. These can affect how we make decisions and judgements. The field of behavioral economics studies these heuristics and biases in order to explain economic decision making. The case behavioral economics makes is that humans are less rational and selfish than the traditional economic theory suggest (e.g., homo economicus5) due to being limited by bounded rationality and self-control issues. 3 https://www.francetvinfo.fr/sante/maladie/coronavirus/une-fete-de-la-musique-sans-trop-de-precautions-pour- oublier-le-coronavirus_4017437.html 4 https://www.verywellmind.com/what-is-a-heuristic-2795235 5https://www.oecd.org/economy/homo-economicus-an-uncertain-guide.htm 3 The dual system theory In his 2011 bestselling book, “Thinking, fast and slow”, Daniel Kahneman, makes the distinction of two systems of thinking in the human mind. Kahneman makes the case of a “fast”, intuitive system 1 that makes simple and easy decisions, with little thinking involved and utilizes impressions, intuitions, and a “slow” and deliberate system 2 that makes calculating informed decisions, by taking into account different data and options. An accurate example of the use of system 1 and 2 would be that of driving a car. The first few times we drive, our brain painstakingly stresses over every detail and deliberately focuses on every decision we make, using system 2. After we familiarize ourselves with the task, it becomes automatic and effortless, meaning it now utilizes system 1. System 1 is also the source of the aforementioned heuristics and biases discussed above, as the brain makes certain automated thoughts, and forms impressions instinctively through the utilization of the intuitive system 1. This is done to avoid cognitive strain and to leave space for what our brain considers more important mental tasks. Many of the biases and heuristics we will be analyzing shortly, are all products of such unconscious thinking that derives from system 1, while in order to recognize the bias and make a more informed and rational decision, we would have to use our system 2. We will now begin our detailed examination of the different biases and heuristics that are responsible for the irrational behavior during the pandemic. The effects will be presented in alphabetical order. 4 1. Action bias This bias refers to the belief that performing an action gives people a certain amount of control over a specific situation. This bias is the opposite of another form of bias we will be discussing later on, the status quo bias that takes into account inertia and focuses on people’s tendency to stay in a certain situation and not act. Action bias takes the opposite approach and focuses on the illusion of control that such an action would create. An example of irrational behavior during the Covid-19 pandemic would be the tendency to stockpile on food and supplies, despite reassurances from experts that there is no danger of shortage. People choosing to over exaggerate, and stockpile food, medicine and other products deemed necessary during the pandemic such as masks and disinfectant gel, believe that by their action they will be better prepared against the unknown dangers of the pandemic, even though in reality the excessive queuing at supermarkets and other stores is putting them at further risk of contracting the disease. Fighting the action bias is challenging, as the sense of security and reassurance provided by hoarding and stockpiling food and other useful resources is an evolutionary trait that has existed in humans since their inception. At the same time, it is important to realize that scarcity of certain products is only going to be self- created, as more and more people fall prey to this bias and thus create shortages (e.g., toilet paper). By being a more rational consumer, while listening to the experts ensuring that there will be no shortage under normal conditions, such effects can be mitigated. 5 2. Affect heuristic The affect heuristic represents a relation between a reaction and the feelings caused by the said reaction. These feelings are quick and impulsive and thus dominated by our system 1 thinking. People tend to consider benefits of a behavior they like as high and the risks as low, whereas for a behavior they dislike they consider the benefits as low and the risks as high. The affect heuristic is dependent on a quick decision with little to no information or supplementary research on a subject. This behavior can affect the way that people react to medical procedures and treatments. In relation to Covid-19, the affect heuristic can have major influence on the adherence of Covid- 19 related measures such as mask-wearing, social distancing and hand washing. The association for example of not adhering to the Covid-19 related measures with contracting the disease can create a negative affect towards not adhering, thus pushing more people to comply with the necessary health measures. In the same light, creating a positive feeling in regard to being at home with family, can cause an increase in people staying indoors to help reduce the spread of the virus. Taking advantage of the affect heuristic and creating negative or positive emotions towards certain measures or behaviors, can prove of vital importance in fighting the virus. 3. Choice overload/Decision fatigue/Ego depletion In this section, we will be looking at choice overload, decision fatigue and ego depletion, as these three phenomena can justify the information overload that occurs as a result of the many information campaigns for Covid-19. Choice overload is based on studies that show how the existence of many difference choices, often paralyzes the consumer (decision paralysis) where 6 they choose to not take any action instead. In his book “The paradox of choice”, Barry Swartz mentions the “jam experiment”6 where consumers were more likely to make a purchase when there were 6 kinds of jam offered to them, than when there were 24. Certainly, the condition with 24 different kinds attracted more consumers, but fewer decided to finalize the purchase of a product. Decision fatigue refers to the psychological cost of making decisions and how long sessions of decision making can have a negative effect and produce bad choices. In the same vein, ego depletion, makes a case of a limited amount of self-control that works in the same way a muscle does. Tiring out the muscle can weaken our ability to exercise self-control, make safer choices and stay away from impulse. Studies conducted by the Behavioral Insights Team show the impact that too much information can have on Covid-19 related behavior. A randomized controlled trial (RCT) in Bangladesh 7 monitoring proper hand washing techniques, clearly reflects that information overload can have a negative effect on Covid -19 safety measures.
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