We are experiencing a paradox, a great paradox. And it is not good. Uncertainty in the long term but in the middle of duplicated days. For more than two months, we have been living in “Groundhog Day”.
The effects and evolution of Covid19 in the generation of millions of infections and thousands of deaths, the lack of knowledge of the duration in terms of months maybe years? Of its economic effects on our lives, loss of employment, both ours or those of people close to us, the shutting down of companies, the fall of economic sectors, the lockdown, the lack of social relationships … Uncertainty, the great long-term uncertainty that we are experiencing due to all this misleads us, paralyzes us, and generates major emotional problems. We do not know what will happen to us, our jobs, families, society as we know it now. The effect of this long-term uncertainty is worse than a bad situation that is known to us. The ‘known’ situation, even if it is negative, allows us to act, feel in control, be able to produce action, look at the future in a positive way. We can and we know how to reach it.
In the “day to day” we are living in ” groundhog day”. When we get up, when we sit at our workplace at home- because we are working remotely- when we stop to have a coffee … it is the “hundredth” time that we do it, recurrently over the last two and a half months. We think “Again? But I was just doing that”, but it was yesterday or the day before yesterday.
For people this is the worst situation, we prefer a more or less stable and ‘known’ future and a “day to day” with small surprises, we handle ourselves better.
Paralysis and lack of control
It is well known in psychological research that uncertainty paralyzes. For example: there are two rooms and in each of them a dog that receives electric shocks. The discharges are strong, they cause a lot of pain. With dog A, the shocks occur without any warning and always at irregular periods of time. With dog B, the shocks are preceded by a light turning onand the periods of time are regular. The number of daily downloads is the same for both dogs. Clearly, dog A manifested greater anxiety, loss of appetite, disorientation and strange behaviour compatible with what we could understand as stress and fear.
So let’s seize the opportunity! A great uncertainty can allow us to dare to undertake new challenges. It is a time to undertake changes, projects, habits that we have not dared to pursue until now. If we are wrong, if we cannot achieve it, nothing will happen, the environment is so “horrible” that if we fail we will be in the norm. Let’s make pilots, beta versions. Now is the time to make changes, start (or do) sports, habits that we wanted to have, recover friendships (virtually), propose professional relationships (virtually), give talks to a few people (virtually) … It seems that many things are going to be virtual in the near future.
Covid19 has also finally moved us to start saving money, but it’s unclear how long this new habit will last.
Because this Blog is about Behavioral Economics, how about starting a new habit of saving for when the tough days come? Now is a good time to plan for the worst. It seems that the consumer will never be the same again and that is why the recovery will be delayed. Wwe could think that there may be an effect of “damned demand” or retained consumption to boost growth after confinement, but studies on human behavior indicate that the consumption pattern changes after such a negative shock.
The best time to save was months ago and the second best time is today. It is true, we are saving, but what is an emergency fund for? Panic is bad, but overreaction is good. It is time to think about your rainy day funds because we are in an emergency situation.
Will the saving trend continue after this health and economic crisis? “There is a question of whether this will lead to behavioral changes in the future,” says Ariely. “It depends on how the cash moves. If people make one-time transfers, then it probably won’t become a habit. If people make automatic deductions, they will be more likely to stick.” But, if we are cautious and remember what happened, we will be better prepared for the future.
We will return to how we were, for better and for worse.
A few years ago, in a conversation with a taxi driver – it is not very common for me to have conversations with taxi drivers – I do not know how we started talking about it but he told me that he had survived cancer. Looking at the back of my taxi driver, I felt sorry and very close to that person for the importance of what he just told me, I confessed that I appreciated his confidence, I was envious of the wisdom that I understood that he had acquired. Now he would know how to enjoy the small details, the simple conversations with his friends, the time with nothing necessarily to do, the here and now. My taxi driver told me that this was the case at first, but that seven years later, his life was the same as before.