Why did people across the world hoard toilet paper during the pandemic? Why hoard toilet paper rather than food or medicine? What are the lessons?

Humans are creatures of comfort; we design processes and systems that minimize efforts and enhance certainty.

We can predict approximate outcomes when one or two forces are in play.

But when several forces change and combine simultaneously neither outcome nor magnitude is predictable.

'Life is just one damn relatedness after another.' – Julian Huxley. So you must understand all of the forces in play and you must also see the relatedness and the effects from the relatedness.

Charlie Munger calls it “Lollapalooza effects”,

Munger emphasizes that when multiple psychological principles and biases act together, they can create a powerful force that leads to major behavioral changes. These biases include:

1.     Incentive-caused bias: People's actions are heavily influenced by incentives.

2.     Social proof: People tend to follow the actions of others, especially in uncertain situations.

3.     Authority bias: Individuals are more likely to follow the instructions or suggestions of an authority figure.

4.     Consistency and commitment bias: Once people commit to something, they are more likely to stick with it to appear consistent.

5.     Reciprocity: People feel obligated to return favors.

6.     FOMO: Fear of missing out

It is not just people, it impacts technology systems. How many times we have heard about system outages after code migrations?  Independently it was o.k. but together everything went awry.

During the pandemic, too many forces changed at the same time causing broad, disproportionate, and irrational outcomes in the system.

The social proof led to toilet paper hoarding. It also led to run-on deposits in Silicon Valley Bank recently.

FOMO leads to investment bubbles, every few years there is a bubble followed by a recession.

During the great financial crisis, rating agencies were tracking credit card delinquencies as a leading indicator but behavior changed – defaulting on mortgage payments whilst continuing to make payments on credit card bills.

How should you guard against the fallacies?

1.     Cultivating multi-disciplinary thinking by learning and integrating knowledge from various fields can lead to better decision-making and a deeper comprehension of complex problems.

2.     Understand interconnectedness by combining insights from engineering (systems thinking), psychology (human behavior) and economics (incentives).

3.     Checklist: Complex situations are better managed with a checklist because the human mind can play tricks under stress. Pilots rely on checklists for routine flights and during emergencies. I recommend reading Checklist Manifesto by Atul Gawande.

Embrace continuous lifelong learning.

That is it for today, see you next time.

Read all my “Notes to Self” at view all blogs.