As economists, we are interested in explaining human behavior, and we utilize psychology to understand why people behave the way they do. Consider people’s toilet paper hoarding behavior during the pandemic. Use your common sense and your real-world observations to fill in the payoff matrix below. As always, the first value is the row player’s payoff and the second value is the column player’s payoff.
The correct answer and explanation is:
Okay, let’s model the toilet paper hoarding scenario during the pandemic using a simple 2×2 payoff matrix. We’ll consider two representative individuals (or households), Player 1 and Player 2, deciding whether to “Hoard” (buy a large, unusual quantity) or “Don’t Hoard” (buy their normal quantity).
Based on common sense and observations of the time, the key drivers were uncertainty, fear of scarcity, and the desire to avoid being the one left without supplies.
Payoff Matrix: Toilet Paper Hoarding
| Player 2: Hoard | Player 2: Don’t Hoard | |
| Player 1: Hoard | (2, 2) | (4, 1) |
| Player 1: Don’t Hoard | (1, 4) | (3, 3) |
(Numbers represent relative payoffs, where higher is better for the individual player. First number is Player 1’s payoff, second is Player 2’s.)
Explanation:
This payoff matrix reflects the incentives and outcomes surrounding the pandemic toilet paper shortage, blending economic rationality with psychological factors like fear and self-interest.
- If Both Hoard (2, 2): Both players secure a large supply, avoiding the worst-case scenario of running out. However, this comes at a cost: spending extra money, finding storage space, and contributing to the very shortage they fear. It’s okay because they have supply, but not ideal due to the effort and inefficiency.
- If Player 1 Hoards, Player 2 Doesn’t (4, 1): Player 1 achieves the best possible outcome (payoff 4). They have secured their supply regardless of overall market availability, and Player 2 faces the risk of finding empty shelves (payoff 1 – worst outcome for Player 2).
- If Player 1 Doesn’t Hoard, Player 2 Hoards (1, 4): This is the symmetric opposite. Player 1 faces the risk of being without (payoff 1 – worst outcome for Player 1), while Player 2 is secure (payoff 4 – best outcome for Player 2).
- If Both Don’t Hoard (3, 3): This represents a functional market. Both players buy only what they need, supply remains available, and there’s no stress or extra cost associated with hoarding. This outcome is collectively optimal (better for both players than (2,2)).
Analyzing the matrix, we see that for Player 1, hoarding yields a higher payoff (4 or 2) than not hoarding (1 or 3), regardless of what Player 2 does. Hoarding is a dominant strategy for Player 1. The same logic applies to Player 2. Since “Hoard” is a dominant strategy for both players, the Nash Equilibrium is (Hoard, Hoard) with payoffs (2, 2).
This game structure resembles a Prisoner’s Dilemma, explaining the widespread, seemingly irrational hoarding. Despite the fact that both players would be better off if neither hoarded (3, 3), the individual incentive to secure supply and avoid the low payoff of being left out (1) drives both players to choose their dominant strategy, resulting in the collectively sub-optimal outcome of mass hoarding and actual scarcity (2, 2). Psychological factors like fear of missing out and uncertainty amplify the perceived value of the “secure supply” outcomes (2 and 4).