Common Knowledge for the Uncommon Cold
My wife texted me yesterday asking if we should stock up a couple of weeks worth of food and water.
Now, there’s really no empirical reason to stock up on food and water. But there is a psychological/economic reason: the Common Knowledge game.
Common Knowledge is something everyone knows everyone knows. When something becomes Common Knowledge, most people will behave as if the “thing” were true, if it is not. Stock markets are perfect example of Common Knowledge games. People will buy or sell stock, not because they believe stock price ought to rise or fall, but because they everyone believes stock prices will rise or fall.
Coronavirus has triggered a massive, global Common Knowledge game. Everyone knows that everyone knows that supply chains will be shut down because of the pandemic, food supplies will dry up, and basic needs won’t be met. In reality, none of that will happen, but people are behaving as if it already has.
Because I expect people to stock up on everything from toilet paper to underwear, I agreed to stop at Walmart on my way home and pick up some foods that last: bacon, eggs, cheese, nuts, peanut butter, and canned vegetables. These foods are resilient to spoilage, don’t require a freezer (electricity), pack lots of vitamins (eggs), minerals (nuts), fat (bacon and nuts), and protein (eggs, bacon, nuts). Besides, these ingredients are tastier than MREs. I also bought some propane cans for my packable camp stove.
Of these foods, only peanut butter and canned vegetables are widely perceived to be a good emergency food source. Walmart’s robust peanut butter section was bare. As were fresh meats, which spoil relatively quickly. A group of about 30 shoppers stood around the frozen meats case and grabbed packages right out of the hand of Walmart employee who was trying to restock the case. It was a human feeding frenzy.
While fresh meats, canned vegetables, and peanut butter were gone, bacon, eggs, and cheese were plentiful. So, I grabbed what I could, substituting cans of baked beans for the unavailable canned vegetables. The propane shelves were completely full.
All of this is evidence of the Common Knowledge game. People are buying food, not because they fear coronavirus, but because they fear (anticipate) how other people will respond to the virus. They’re thinking ahead and reasoning backward. Like this:
Everything is shutting down.
People are freaking out.
When people freak out, they stock up.
If I wait to stock up, nothing will be left.
Therefore, I must stock up now.
When people get to the store, they see empty shelves in many aisles and the sound of panic from the group huddled around the frozen meats case. This reinforces their decision to stock up and triggers atavistic fear responses in their amygdala which translates verbally into, “it’s worse than I thought.”
Some will say this stocking-up behavior is irrational, but it’s not. Stocking up in the face of an emergency is precisely the right thing to do, even if the prima facie reason, a virus, is the wrong reason.
Stocking up for the coronavirus is the right thing to do, the best strategy, because of the Common Knowledge game. I didn’t buy lots of bacon because of a pandemic; I bought lots of bacon because other people were buying lots of food because of a pandemic.
(For a better explanation of Common Knowledge, check this out.)
The irrational part of the response was from those who bought fresh, uncured meat. That stuff won’t last long if electrical workers can’t keep the grid up. The fact that people were stocking up on the most perishable foods with the shortest shelf lives shows that, at some level, they don’t expect the coronavirus to cause major disruptions. They are simply responding to their anticipation of the behavior of others.
And that’s how Common Knowledge games work.
Now, there are two strategies to play in a Common Knowledge game. One strategy is to behave as if the “thing” were true, to mimic the crowd. That’s what I did, and it’s what most people do. It’s the safe path. Swimming against the stream in a Common Knowledge game can be risky, even dangerous.
But where there’s risk, there’s reward. Buying stocks while everyone else is selling usually results in big gains down the road. But not always. And when the stocks you bought in the midst of sell-off just happen to be issued from a company that doesn’t survive the panic, you look like the greater fool.
So which strategy to take?
That’s up to you, but here’s my advice: think about the psychological games triggered by the coronavirus, not about the virus itself. This behavior alone will break the cycle of fear and response that we’re seeing everywhere. Thinking like a game theorist will lift your point of view above the crowd so you can see the opportunities and dangers that lie ahead. It will dampen your emotions, as your brain will be busy analyzing.
The pandemic will end, probably as suddenly as it began. When it does, the economy will accelerate with such force that people will be shocked. Some companies will fail, not because of the pandemic, but because of the recovery, as they will be unable to satisfy the immediate demand.
I won’t predict when this economic lift-off will occur, but most virologists tell us that warm weather tends to tamp down viruses. Ultraviolet rays are the best disinfectant. Outdoor activity reduces the concentration of viruses. Weather matters.
I’m grateful that my wife sent me that text yesterday. I now have an excuse to eat more bacon.