What is Panic Buying?
Panic buying is a phenomenon of mass purchasing that typically occurs either just before or just after some sort of disaster – whether the disaster is real or only predicted. It often happens related to severe weather incidents, such as an impending major snowstorm or hurricane. Consumers fear not being to get needed supplies, so they rush to the stores and stock up on them – buying significantly more of certain products than they usually do.
The phenomenon of panic buying often results in a self-fulfilling prophecy. Consumers fear there will be a shortage of supplies, which leads them to purchase massive quantities of the items. The mass purchasing then leads to an actual shortage that would not have occurred except for the panic buying.
Panic buying ensued in the early stages of the COVID-19 pandemic in 2020 when consumers suddenly started buying mass quantities of household items, such as toilet paper, protective masks, hand sanitizer, and cleaning supplies.
In a different context, panic buying also sometimes occurs in the financial markets. When the price of a financial asset, such as a particular stock or commodity, experiences a sharp, sustained rise in price, many investors rush to invest in it, fearful of missing out on an opportunity to make a substantial profit.
- Panic buying is the phenomenon of consumers making massive purchases in response to a predicted or actual disaster, such as a severe storm.
- Overbuying is the result of fear and anxiety that leads people to make irrational decisions.
- Panic buying of investment assets results when the fear of missing out leads people to rush to invest in assets whose price is rapidly rising.
What Causes Panic Buying?
So why does panic buying occur? Psychologists commonly explain the phenomenon of panic buying as being driven by anxiety and fear of the unknown (e.g., what the damage from a hurricane will be) that is strong enough to lead to irrational behavior in the form of over-purchasing.
For example, while it may certainly make sense to buy an extra gallon or two of milk before a predicted major snowstorm, it is not rational to purchase a three- or four-month supply of goods just to get you through a few days of possibly being snowed in. However, fear often leads to irrational behavior. Consumers fear that they will run out of supplies. They don’t stop to think about how unrealistic their fear is. Instead, they just buy everything that they can.
Then there is also the self-fulfilling prophecy aspect referred to previously. Even if just a small percentage of consumers begin to engage in panic buying, the shoppers following after them see depleted store shelves. It makes those shoppers fearful of shortages, so they buy more goods than they normally would. The end result is that actual shortages are created, which appears to the panic buyers as justifying their fears.
In relation to panic buying in the financial markets, the stimulus is often “fear of missing out” – often referred to as FOMO. When investors see the price of an asset rapidly rising, they fear they may be missing out on a golden opportunity to make a lot of money. Therefore, they rush to invest large amounts of capital in the asset, hoping for a huge profit in return.
Examples of Panic Buying
There have been many instances of panic buying on a large scale throughout history. The following are just a few examples from the past century:
- The Spanish flu epidemic that occurred in 1918-1919 caused consumers to buy large amounts of over-the-counter remedies. Some health products saw their sales more than triple from the year before.
- In the 1920s, hyperinflation in Germany and Austria led to panic buying of virtually everything. Consumers rushed to buy products before the hyperinflation drove prices higher, making the goods less affordable.
- During the 1962 Cuban Missile Crisis, many Americans fearful of possible nuclear war engaged in panic buying of canned foods.
- The 9/11 terrorist attacks on the World Trade Center in the United States led to panic buying of gold and oil in the financial markets worldwide, eventually driving prices to record levels.
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