The Element of Fear (Ethan Nguyen ECO4)

In the wake of the Covid-19, the world has had to suppress and adapt to the issues that have arisen. Such a epidemiological threat can have disastrous effects on the economy. Disrupting the global supply of goods, waylay the workforce and slow down demand. During times of hardship, temporary polices are put into place to decelerate the effects. Not only have sectors such as flight and retail suffered from the fear caused by the pandemic, peoples decision making has been hindered as well. Many unknowns and assumptions are the real reason for the economies decline in the last months. This is due to the uncertainty of the situation, which is when heuristics takes control.

Strategies

Stimulus packages, interest rate cuts, policies are all strategies that help aid the community in unprecedented times, but how effective are they? Monetary stimulus stimulate the economy and are used in dire situations. When interest rates are cut, the incentive to borrow is heightened as cost for borrowing is reduced. Increased circulation helps revive declines. The intention of the current stimulus package is to support jobs, income, small businesses and investments. With more disposable income, spending is aimed to rise. But is this really the case? With businesses receiving increased cash flow, it will keep them in business. Employees keep their jobs, therefore making their lives easier during this time of fear.

Scott Morrison looks to the distance as he stands in a courtyard — The Morrison Government’s support package is worth over $15-billion (ABC News)

Heuristics

Heuristics are techniques that are not guaranteed to work that are used to satisfy short-term goals. Heuristics are turned to especially in times of uncertainty and as everyone has seen, panic is submerging effected cities that have confirmed cases of Covid-19. Panic is derived from fear. What does fear promote? irrationality. During times where fear blurs the line between reality and figments of our imagination, many community members turn to heuristics. Panic buying has come from fear since the announcement of the pandemic, but what has influenced this way of action? The bandwagon effect. It is common in many areas of life, such as sports, fashion, lifestyles. People turn to the opinions of others when unsure. When there’s an element of risk, this effect exponentially grows. As mentioned in Strategies, the government is combating the fear of the virus by stimulating the economy via various strategies. Tax rebates and insurance rate cuts give you a boost of income in the hopes of increasing consumer spending. When people have disposable income, they will spend it somewhere. Bounded willpower is also in effect in regards to panic buying. People would rather be safe than sorry, and when fear is high it leads to irrational spending. This is detrimental to many aspects of life, not exclusive to financial aspects. Too many unknown facts leads to assumptions, and assumptions lead to conflicting opinions. Even with the strategies being implemented, Seeing everyone around you panicking encourages this behaviour for yourself. Fear of the unknown regulates the herd behaviour mentality and it doesn’t seem to be slowing down. When in times of hardship and stress, your mind takes shortcuts to make fast decisions.

Effected

Investors are in discussion on the course of action to with the pandemic. Major sectors are experiencing declines with a few surging up (Healthcare). Businesses across the world are shutting down in attempts to contain the spread. Despite the $17-Billion dollar stimulus package being announced, the ASX was down 7.4% on the 12th of March and has been experiencing volatility since. Investors rather not make profit than make a loss. This way of framing it and herd behaviour has caused many other investors to pull out of the stock market. Investors and members of the community are suffering as the future regarding the Covid-19 is unclear. The hopes for steady recovery is looking unlikely as the course of action is not clear.

The community is obviously affected by the fear of Covid-19, as stores around Australia run empty of supplies. People are doing this because they want to feel like they’re in control of the situation. At the current moment, there is not much information on how Covid-19 will effect daily life. Therefore people are taking matters into their own hands and being overcautious.

Conclusion

Heuristics cause shortcuts in our thinking that may defer our though processes. Immense fear has surged since the announcement of the pandemic, which has lead to heuristics taking over peoples thinking. Strategies implemented and policies will continue to reap benefits, in attempts to aid those in hardship. It is hard for myself and everyone to pin point the direction of the effect of fear in regard of economies around the world. Scott Morrison has urged Australia’s major banks to pass on any cuts to support the economy, and discussion on the future of public gatherings are taking place. Fear of the unknown is consuming the community, but I believe that as the months go by the response to the virus will become more rational. This is the case as people will gain more information about the virus and it’s effects.