Panic Buying, An Economic Perspective

At the start of lockdown measures many people started buying bulk at supermarkets. Where many governments condemned these kind of practices it actually can be very rational for people to make this choice.

At first glance it seems rather selfish to start buying in bulk; in this way people who are in greater need find empty shelves at the end of a hard day of work. Inventories of supermarkets tend to be used as efficiently as possible and there supermarket stores aren’t capable to withstand a sudden endogenous shock as was the case at the start of the corona outbreak. It seems as if this unknown phenomenon of lockdowns scared people in such a way that this fear switched on survival mode which resulted in supermarket shopping sprees. At least, this was the narrative in mainstream media, here at The Golden Investor we like to look at it from a different perspective. We like to use the prisoners dilemma in this occasion and from there we will show that bulk buying is actually a great investment.

Non-Negotiable Prisoners Dilemma Leads To Detrimental Behaviour

The prisoners dilemma basically describes a situation where two prisoners face the option to betray each other (2 years of prison) or remain silent (1 year of prison). For the prisoners both remaining silent is the best option. However there’s a “perverse” incentive for both of the prisoners to betray each other if they think the other remains silent. The silent one will get all the blame and a higher sentence (3 years of prison) and the snitch will go free. Because they don’t know each other’s choice, the dominant strategy is to betray each other.

“A prisoner’s dilemma is a situation where individual decision makers always have an incentive to choose in a way that creates a less than optimal outcome for the individuals as a group.” – Investopedia¹

The same theory can be applied to the panic bulk buying, the socially optimal outcome would be that no one would buy in bulk and the supermarkets would be able to maintain healthy levels of stock in store. However the corona outbreak is slightly different than the normal prisoners dilemma game, first of all it involves an almost infinite number of people, second of all the game is different for every individual. Two prisoners can make a deal with each other and try to enforce non-snitching behaviour, with panic buying this is almost impossible because people aren’t able to negotiate with every competitor in this game. This leads straight away to a non-socially optimal outcome of bulk buying; e.g. if you know you can’t compete against the mass, you have to beat the mass in order to obtain the most economically efficient outcome. It’s a non-negotiable prisoners dilemma.

Ethics Diverges The Game Into Wealth Varying Subgroups

However in the prisoners dilemma, there’s no room for ethics. If you would involve ethics in the prisoners dilemma, this would mean that prisoners wouldn’t snitch on each other either way, simply because they obey the non-written rules of the gang. The same applies to the corona virus bulk buying. For some people, being a good person or having the feeling of being better than others gives a much more satisfactory feeling than having an extra big supply of food and toilet paper at home. If you lack this feeling of empathy with unknown fellow human beings, which is the case for many people in many decisions, it is rational to buy in bulk.

Toilet paper is a better investment than money on bank accounts at the moment.

If you can afford to stockpile, than it is completely rational to do this. Currently money on savings accounts doesn’t increase over time, interest rates are zero, however inflation keeps on going. Next year, the same toilet paper is two percent more expensive using the target inflation of central banks. In other words, pre-corona people were just not as efficient in allocating there assets, toilet paper is a better investment than money on bank accounts at the moment. Many people just started to make better financial decisions.


Using this inflation targeted argument, we also can argue that shortages can lead to increased prices in certain types of supermarket products. At the moment stores around the world face supply chain disruptions, from leek to meat, many stores now face empty shelves due to a logistical supply shock. This issue was previously discussed in the Golden Investor March Stock Market Outlook and is now visible in supermarkets all around the globe. If consumers adapt their behaviour to future supply shocks, they may also have been “pricing-in” possible future shocks in prices of these products. Therefore the game doesn’t only diverge into ethical and non-ethical games, it is further split into games for different classes of wealth. Poor people who can afford toilet paper now, are afraid of price increases due to demand and supply shocks, so they make the rational choice to buy now and own later. In this way they create an investment in an asset with an even higher yield than the two percent inflation. Whereas rich people tend to have less incentive to buy toilet paper, because they can afford future prices and are able to overcome temporary spikes in prices and thus can afford to be ethical.

People prefer certainty over everything, especially in uncertain times, this is very much visible in the panic buying shopping sprees. Even if the chances are low that supply of supermarkets will see long-lasting disruptions, for many people it is absolutely rational to buy in bulk: they use the asset, it has some yield and provides absolute supply certainty. Therefore bulk buying is always a perfect investment, but during corona times it is an even better one.

Disclaimer: This article was written to shed a different light on an economic phenomenon. The Golden Investor does not judge the ethical behaviour of others individuals. It is for each individual to make its own decisions.


1) https://www.investopedia.com/terms/p/prisoners-dilemma.asp


Leave a Reply