You are Here > Home > Financial Sense Home > What #alcoholban panic reveals about human behaviour in times of uncertainty

What #alcoholban panic reveals about human behaviour in times of uncertainty

Oct 15, 2020

By Sharon Moller, Financial Planning Coach at Old Mutual Wealth

What #alcoholban panic reveals about human behaviour in times of uncertaintyIn August, South Africans formed long queues outside liquor stores across the country, hoping to stock up on alcohol before a rumoured ban came into effect. But, as it turns out, the ban was fake news, spread on WhatsApp and social media.

While authorities committed to tracking down the source of the hoax, this kind of panic-buying has a lot to teach us about human behaviour in times of uncertainty.

If investors can understand the basic subconscious motivations behind phenomena like the alcohol-ban panic, they can use these insights to understand their behaviour during a financial crisis.

Covid-19 has given us many examples of decision-making fuelled by uncertainty rather than reliable information – from stockpiling wine to panic in the stock markets.

South Africans rushed out to bottle stores for similar reasons that so many rushed to invest in gold earlier this year. In both cases, our brains are responding in a specific way to a perceived threat.

Driven by fear

In situations of extreme uncertainty, our brains start to make connections in a frantic bid to impose some control on the rapidly shifting world around us. But the impulse to make these links comes from fear, not rational thinking.

The links don’t objectively exist outside of our anxious minds. Panic-buying – and, in the case of the stock market, panic-selling – simply makes the brain feel as if we’re doing something to gain control and keep ourselves safe. And that impulse is powerful.

The decisions we make in this brain state might not be sensible, but they do make a certain kind of sense. Neuroscience has shown that what may look like an overreaction is in fact an adaptive response, developed over hundreds of thousands of years of evolution.

“The brain doesn’t stop to ask if the threat is real or even if the action is constructive – it just kicks us into action mode because it reads uncertainty as a real existential threat.

Because we’re social creatures, there’s also an element of ‘emotional contagion’ at play. So when we see people around us lining up to bulk-buy alcohol, we’re even more inclined to flip into panic mode.

Groupthink makes us feel the stockpiling must be necessary and, at the same time, it amplifies the feeling of scarcity – if you have more of something, then I’ll have less of it. So we make decisions we wouldn’t usually make from this ‘scarcity mindset’.

Implications for financial markets

The neuroscience of uncertainty has enormous implications for financial markets, where sentiment is a major driving force.

It’s human nature to buy and sell during a crisis ­– to take some kind of action to create a sense of control – and panicked actions generate a snowball effect on market supply and demand. It’s tough to resist the temptation to do the same. After all, your brain is wired for this reaction to uncertainty.

How to avoid panic

The first thing is simply to notice that you’re feeling fearful. Notice yourself reaching for something to do to give a semblance of control.

Then find a way to give voice to your fears. Talking to someone about what you’re feeling is a step in the direction of more rational thought. It could be a financial planner, a therapist or a trusted friend.

The point is that by talking through the emotions, you’ll see how they are driving your behaviour and gain some perspective. Speaking the uncertainty out loud – ‘I feel anxious; this is uncomfortable; I don’t know what to do’ – will help your nervous system shift out of high alert into a more reasoning mode.

It’s by no means a quick or easy fix, but emotional awareness and processing really are our best defence against fear-based decisions which, when it comes to long-term investment goals, are invariably a mistake.

This article first appeared in City Press.


Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

Listen: Global investing made easy

In this podcast Maya (@mayaonmoney) speaks to Warren Ingram (@warreningram), financial planner at Galileo Capital about his new book Global Investing Made Easy. Warren shares his insights into the investment decisions we make, and those we should be making.

SARS issues guidance on crypto assets

On 27 August 2021, SARS provided further guidance on the correct tax treatment of crypto assets and how this must be declared in people’s tax returns. SARS published a document on its website entitled Crypto Assets & Tax. The publication should perhaps best be...

High-risk land investment leaves angry investors out of pocket

Many South African investors who bought UK property developments through SA-based property marketing company SJ Capital, have seen no returns for over 11 years. Investigations have found that the investment is extremely high risk and that investors were not fully...

Listen: Creating a passive income with shares

In this podcast, Maya (@mayaonmoney) chats to money blogger Brett (@ETFenthusiast) on how blogging helps keep him on track financially, his plans in working towards financial freedom, and which investments he is using to provide a passive income in the future.

You don’t need a lot of money to start investing

Many people feel they need to have a lot of money in order to start investing. In fact, the opposite is true. Investing small amounts every month actually provides the best risk-return scenario when it comes to longer-term investing. Investing via a monthly debit...

Retirement planning is not a once-off event

Jaco Prinsloo, Wealth Manager at PPS Wealth Advisory, has some sensible advice around retirement planning. As a wealth manager, I have observed that there are two typical clients. Some dread retirement, while others look forward to it. Those who dread it are the ones...

Four signs that could predict a market crash

Pieter Hundersmarck, fund manager at Flagship Asset Management, wants us to learn from history when it comes to the factors that could trigger a market crash. While the future is unlikely to be an exact repeat of the past, history is full of valuable lessons. These...

Removing the rand from the offshore investment equation

Kyle Wales, fund manager at Flagship Asset Management, says that we should consider offshore investment for the right reasons, not simply because we fear rand weakness. Many investors base their decisions to invest offshore purely on their subjective assessment of the...

Habits that set successful investors apart

When investing, sometimes the best course of action is to do nothing. Having the ability to block out the noise, and look through the cycle, are some of the cornerstones to investment success over the long term. Nomi Bodlani, head of strategic markets at Allan Gray,...

Listen: Why institutions are taking bitcoin seriously

If you want to understand bitcoin, blockchain and the related crypto-asset world, listen as Chris Becker, blockchain technologies specialist at Investec Private Bank, unpacks the world of blockchain technologies and explains why we are just at the start of a...

Pin It on Pinterest

Share This