{"id":51730,"date":"2020-03-10T19:38:15","date_gmt":"2020-03-11T00:38:15","guid":{"rendered":"https:\/\/olduvai.ca\/?p=51730"},"modified":"2020-03-10T19:39:22","modified_gmt":"2020-03-11T00:39:22","slug":"a-toilet-paper-run-is-like-a-bank-run-the-economic-fixes-are-about-the-same","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=51730","title":{"rendered":"A toilet paper run is like a bank run. The economic fixes are about the same"},"content":{"rendered":"\n

A toilet paper run is like a bank run. The economic fixes are about the\u00a0same<\/a><\/strong><\/h3>\n\n\n\n

Panic buying knows no borders. <\/p>\n\n\n\n

Shoppers in Australia<\/a>, Japan<\/a>, Hong Kong<\/a> and the United States<\/a> 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. <\/p>\n\n\n\n

This panic buying is the result of the fear of missing out. It\u2019s a phenomenon of consumer behaviour similar to what happens when there is a run on banks.<\/p>\n\n\n\n

A bank run occurs when depositors of a bank withdraw cash because they believe it might collapse. What we\u2019re seeing now is a toilet-paper run.<\/p>\n\n\n\n

Coordination games<\/strong><\/p>\n\n\n\n

A bank holds only a fraction of its deposits as cash reserves. This practice is known as \u201cfractional-reserve banking\u201d. It lends out as much of its deposits as it can \u2013 subject to a banking regulator\u2019s capital-adequacy requirements<\/a> \u2013 making a profit from the interest it charges.<\/p>\n\n\n\n

If every customer simultaneously decided to withdraw all of their deposits, the bank would crumble under the liability. <\/p>\n\n\n\n

Why, then, do we not normally observe bank runs? Or toilet paper runs?<\/p>\n\n\n\n

\"\"\/
A Hong Kong pharmacy orders in extra toilet paper in early February, as people panic buy. Jerome Favre\/EPA<\/figcaption><\/figure>\n\n\n\n

The answer comes from Nobel-winning economist John Nash (played by Russell Crowe in the 2001 movie A Beautiful Mind<\/a>). Nash shared the Nobel prize in economics<\/a> for his insights in game theory, notably the existence of what is now called a \u201cNash equilibrium<\/a>\u201d in \u201cgames\u201d.<\/p>\n\n\n\n

Both banking and the toilet-paper market can be thought of as a \u201ccoordination game\u201d. There are two players \u2013 you and everyone else. There are two strategies \u2013 panic buy or act normally. Each strategy has an associated pay-off.<\/p>\n\n\n\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

A toilet paper run is like a bank run. The economic fixes are about the\u00a0same 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.  This panic buying is the result of […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[29204,2086,8487,29031],"class_list":["post-51730","post","type-post","status-publish","format-standard","hentry","category-economics","tag-alfredo-r-paloyo","tag-bank-run","tag-the-conversation","tag-toilet-paper"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/51730","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=51730"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/51730\/revisions"}],"predecessor-version":[{"id":51731,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/51730\/revisions\/51731"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=51730"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=51730"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=51730"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}