top of page
  • Writer's pictureEconAfterHours

When Economy catches Feelings: Fear in the Times of Corona

By Shagun Tyagi

Emotions are high everywhere nowadays.

Wavering optimism, the nostalgia of the ‘normal’ days, uncertainty about future and most prominently: Fear. Fear of our health and our loved ones, of jobs, of the very uncertain future that stares us right in our eyes.

It is safe to conclude that humans have never been so vulnerable in recent times as they are right now. However, why do we behave the way we do in times like these? What happens to our economy when we sit on the roller coaster ride of emotions?

Let us delve in the answers by looking from the lens of economics, psychology, sociology and a dash of neuroeconomics.

Do we even consider emotions in Economics?

Adam Smith disregarded the role of emotions in decision making, giving importance to man’s inherent nature to take decisions in pursuance of his self- interest. John Maynard Keynes, however, argued that, “Our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory,goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing.” Decision making is thus, governed by imperfect information.

This is exactly where the role of guts, intuition and animal spirits becomes clear.We,then, recur to instincts, motives and passions to assist our decision making.

Akerlof and Shiller (2009) had put the role of “animal spirits” in economic decision making in a clear perspective. They provided a background analysis of the financial crisis of 2008-9 resting upon impulses, representations of the world, illusions, need for illusions and (in)adequacy of trust. They point towards the role of emotions, such as fear, apprehension,and trust in understanding how economies evolve.

Hence, when analyzing decisions, we need to account for all relevant aspects of human decision making. It is imperative to discuss the role of emotions such as fear, anxiety and panic in both microeconomic and macroeconomic context.

And yes, what better times than these?

In Focus: Panic Buying

Fear is our immediate coping mechanism whenever we perceive a threat coming our way. Karestan Korenen, Professor of Psychiatric Epidemiology at the Harvard T.H. Chan School of Public Health explains how panic and anxiety affect our decision making. “Panic starts when negotiation of sorts goes awry in our brains”, she says. The amygdala is the emotional center of the brain which just wants threat at bay immediately. The frontal cortex is that part of our brain which helps us see through the threat clearly and make logical decisions to thwart it. However, anxiety can set in confusing our frontal cortex by “all the cross-talks between other parts of the brain” imagining the worst situations. Panic sets in when the whole thing short circuits; the frontal cortex takes a backseat and amygdala controls our decisions, good and bad.

This information can prove to be handy as we decode panic buying ahead.

Panic buying can be defined as buying an excessive number of commodities perceiving future shortage of commodities or hike in their prices.

As governments around the world announced lockdowns, citizens prepared for home- quarantine but some of them ‘over prepared’. We may dismiss the people who indulged in hoarding toilet paper and instant foods as ‘irrational’. However, experts believe that it is something else.

It is human.

We can explain the behavior of panic buyers from many perspectives.

The decision to buy goods sensibly or to stuff your home with months and months of supplies can be found in game theory books. Your decision is not just dependent on what you do; it is dependent on what others do. Your sensible behavior to not panic buy may have little effect if your neighbors decide to panic buy. Social psychology research suggests that there are two main motives for “selfish” behavior – greed and fear. When greedy, individuals are simply unconcerned with others and take what they want to benefit themselves. However, fear is more complex. In this case, individuals may wish to act in a socially-responsible fashion but are concerned that others will not.

We can describe this social narrative by comparing it to the Prisoner’s Dilemma. It is a paradox, showing that two rational individuals may not cooperate even when it is in their individual interest to do so. Suppose two members of the same gang are accused of murder. They are isolated from each other; thereby we reduce the chances of them communicating and colluding. They are given two options: betray the other by testifying that the other committed the crime, or to cooperate with the other by remaining silent.

The possible outcomes can be represented by the following matrix:

Suppose B stays silent, it will be in the interest of A to betray him. If B betrays A, then too, it will be in the interest of A to betray him because two years in jail will be better than three. Here for one prisoner, betraying pays better than cooperation, regardless of the choice other makes. Hence, betraying will be a dominant strategy. The dilemma here is that both of them can reduce jail time by cooperating but their individual incentive structure is such that cooperation seems irrational and they end up going to prison for 4 years (maximum jail time).

Let us now move to our corona-stricken world. It is you v/s rest of the world. There are two options here: panic buy or act normally. If nobody panic buys, you may not end up panic buying. Everybody gets what they want in properly stocked shelves. However, if people are panic buying around you, the optimal strategy will be to hoard instant noodles. It is either successful coordination or coordination failure. All shoppers would be better off if others bought an ordinary amount of toilet paper, but the assumption is that others won’t, so why should anyone?

The result? The shortage, the empty shelves, and frenzy (coordination breakdown).

However, the fear that other people are panic buying can be rooted in reality. Social media was flooded with images of empty shelves.

In 1950, Nobel Prize-winning psychologist Herbert Simons found that even though humans try to make rational decisions, they are limited by cognitive limitations. It was during the 1970s, psychologists Amos Tversky and Daniel Kahneman presented their research on the cognitive biases that influence how people think and the specific ways of thinking that make our decision making simpler. Voila, Heuristics!

Heuristics are mental shortcuts your brain takes to solve a problem; mental strategies to reduce the time we take to make a decision. In the context of panic buying, the availability heuristic is at play. Availability heuristic is a heuristic whereby people make judgments about the likelihood of an event based on how easily an example, instance, or case comes to their mind. Social media making photos of empty shelves viral; TV sets blaring the news of a shortage in our ears make us ‘over’ size up the disaster(shortage).

And then enters the ‘emotional contagion’ making the fear of shortage ‘self-fulfilling’.

Emotional contagion is the transfer of moods/feelings from one person to another. It is something as simple as you yawning when you look at any other person yawning. However, if there is a macro-level negative emotional contagion, it can lead to fear and anxiety in airs; impairing our ability to make logical decisions. Endless WhatsApp forwards make us ape others who are anxious; hence the urge to hoard. Social Proof concept,introduced by Robert Cialdini, is a phenomenon where we try to look at what others are doing in ambiguous situations. These are situations where we are not sure about the appropriate behaviour to undertake. We tend to look at others for a clue on how to behave. Doesn’t something similar happens when we try to make a decision whether to hoard or not?

Pandemics cause humans to feel existential anxiety due to mortality salience; an awareness that death is inevitable. This realisation can lead to the ‘the thinking part’ of the brain to get offline and switch to a survival mode which tricks our rationality to panic buy in response to the fear of scarcity.

It is almost baffling how so many concepts can explain how we think and behave. All in all, the decision to buy (ir)responsibly is a function of how we behave in groups. At its core, panic buying is all about regaining a sense of control in a situation where one cannot go outside (quite literally!) and solve the problem. It is just like retail therapy, however, with far reaching implications.

A survey was conducted to study the intensity of panic buying. This survey was released, coincidentally, at the time of the announcement of the first phase of complete lockdown announced by the Prime Minister on March 25 and it was closed the next day.

The survey’s results made reaffirming conclusions on the theories we have discussed above. Amongst the respondents, 77% saw instances of panic buying among their family friends, relatives, etc. As we will discuss further, panic buying leads to a rise in prices and in some instances price gouging as well. 64% of the respondents noticed price hike around them. The price hike is being attributed to panic buying and lock down which led to shut down of services like transport and labor. An increase in the prices of sanitizers and masks was reported from across the country due to heightened demand from aware consumers. A resounding 81% of the respondents feel that social media induce panic buying while the rest 19% do not think the same. We can safely include that images and videos of empty shelves and long queues on social media send a panic signal to consumers which in turn leads to a domino effect of fear.


There were many cases of price hike around the world. However, price gouging was also prevalent. Price gouging happens when a seller increases prices of goods much more than what is considered fair and reasonable. This is simply cashing out of pandemic. People going frenzy over masks, hand sanitizers, instant foods, etc. gives the sellers the opportunity to profiteer from a crisis. This drives price hike (widespread in some cases), rendering some segments of our population without essential commodities.

“All you need is panic buying from big importers”, said Abdolreza Abbassian, chief economist at the United Nations' Food and Agriculture Organisation (FAO). He cites the problem as a “behavioral change in food security”. This will wreak havoc on global supply chains if there is hoarding by nations and there is not “sufficient food at right time at the right place”. This will drive world food inflation high, due to supply-led shock.

The economic outcomes of the panic buying behavior will unravel more in times to come.

Your mind is important

Your mental state of mind is important for your immune system. Psychological distress can compromise your mental health. Remember the amygdala? When anxiety about uncertainty attacks you, the amygdala awakens from its slumber and works with your stress system to make you vigilant. However,disturbing your stress system too much damages your cells, making you vulnerable to foreign pathogens even more.

However, the economy bears the brunt too! This is not just about panic buying. A stressed mind leads to loss of productivity in the work you do and can make you overly pessimistic about consumption of goods/ investment. There have been many studies showing the economics of mental health treatments and ‘emotional’ constraints on the economy.

It is completely okay to feel anxious in tough times like these. The point is to not let the negative emotions overwhelm you. Calmer work/ study from home soldiers helps our economic case.

Sing. Dance. Paint. Read. A calmer you helps not only you, but the economy too!


1. Layard, & Richard. (2017, January 10). The economics of mental health. Retrieved from

2. Brydon, L., Walker, C., Wawrzyniak, A., Whitehead, D., Okamura, H., Yajima, J., … Steptoe, A. (2008, September 20). Synergistic effects of psychological and immune stressors on inflammatory cytokine and sickness responses in humans. Retrieved from

3. Schopler, J., Insko, C. A., Graetz, K. A., Drigotas, S., Smith, V. A., & Dahl, K. (n.d.). Individual-Group Discontinuity: Further Evidence for Mediation by Fear and Greed - John Schopler, Chester A. Insko, Kenneth A. Graetz, Stephen Drigotas, Valerie A. Smith, Kenny Dahl, 1993. Retrieved from

4. Pandey, Munish Chandra. “Coronavirus in India: Lockdown Hits Food Supply, Prices Rising.” India Today, 4 Apr. 2020,

5. About the author(s) George A. Akerlof is the Koshland Professor of Economics at the University of California. “How 'Animal Spirits' Destabilize Economies.” McKinsey & Company,

6. Reuters. “Panic Buying, Lockdowns during This Pandemic May Drive World Food Inflation.” The Economic Times, Economic Times, 21 Mar. 2020,

7. Business Radio, and Global FocusNorth America. “Coronavirus: How Emotional Contagion Exacts a Toll.” Knowledge@Wharton,

8. Tama, Mario. “Coronavirus Is Spreading Panic. Here's the Science behind Why.” National Geographic, 17 Mar. 2020,

9. Cedrini, et al. “The Challenge of Fear to Economics, by Cedrini, Mario A.; Novarese, Marco.” POLIS Working Papers, Institute of Public Policy and Public Choice - POLIS, 2 Feb. 2016,

10. Pandey, Munish Chandra. “Coronavirus in India: Lockdown Hits Food Supply, Prices Rising.” India Today, 4 Apr. 2020,

11. Savage, David A. “Stocking up to Prepare for a Crisis Isn't 'Panic Buying'. It's Actually a Pretty Rational Choice.” The Conversation, 27 Feb. 2020,

12. Akerlof, George A., and Robert J. Shiller. Animal Spirits: How Human Pyschology Drives the Economy and Why It Matters for Global Capitalism. Princeton University Press.

193 views0 comments

Recent Posts

See All

Economics Deconstructed- 3rd Place

By Abhigya Asmi, Sophia College for Women. Decoding India’s population obsession : Examining the consequences of India’s declining fertility rate and how it affects the economy A 2019 UN report foreca

Economics Deconstructed- 2nd Place

By Garvit Gupta, Ashoka University. Problem Statement: Increasing population has always been a hotly debated topic in the public domain. Is a burgeoning population a boon or a bane? That depends on wh

bottom of page