Behavioural responses during a pandemic: implications for UK exit strategies

Key Takeaways:

• Using a simulation with LBS students, a Nash equilibrium model can show a theoretical level where people become more or less likely to leave home compared to stay at home based on their rewards for doing so, with the indifference level likely to be around 40%;
• Participants in the simulation responded to the risk of infection by cutting time out of the home; this can be used when forecasting real-world implications of lockdown measures, where populations chose to stay at home and reduce consumption before stricter measures were put in place;
• People responded to the fear and uncertainty caused by coronavirus before measures were implemented, likewise, the easing of lockdown does not change consumption to as great an extent as might be predicted, as people are still concerned about the health implications of leaving home as well as the future safety of their jobs;
• This has implications for post-lockdown tracking and testing regimes too: the UK system relies on voluntary action at the outset of symptoms, but it is difficult to implement the measures successfully without the government subsidising some of the costs that individuals have to incur;
• Governments also need to ensure the right schemes are in place that encourages firms to respond behaviourally to adhere to testing regimes, otherwise, they will discourage observance;
• Behaviour matters for being able to understand and predict how a disease will impact a population; individuals trade-off private costs and privatebenefits so behaviour is not always necessarily sociallyoptimal, as well as competing externalities complicating the picture;
• People change their behaviour spontaneously based on conditions and risks, whereas many of the predictive models which look at the rate of infection for COVID-19 across populations did not consider this; therefore, the benchmark ‘do nothing’ scenarios are not likely to be relevant, with important implications for planning and forecasting;
• Spontaneous behaviour will ‘flatten the curve’ in a similar way to government intervention; but incentives need to trade off private costs and benefits, as some will decide to go to work, even if they are causing risk because their employer does not support them staying at home or they have decided it is in their best interest to go to work;
• There is economic eternality which overprotects some workers, such as a chef being sent to go to work because the rest of the restaurant staff are dependent on them as well as people such as bus drivers, who are needed to transport key workers to hospitals and other locations because they make an outsized indirect contribution to the economy; there needs to be a balance where the private costs underestimate the overall economic benefit to society;
• The lack of pharmaceutical intervention has meant that behavioural responses, such as lockdown measures, have had to be implemented, causing great disruption to the economy; the very tool at the disposal of policymakers to control the epidemic is also the tool which makes business as normal impossible, there should have been more people who understood the impact on the economy advising the government and policy decision making at the start of the process rather than epidemiologists;
• Most countries were unprepared, understandably so, and therefore Governmental reactions had to be generalised; these are not feasible economically, socially and psychologically in the long-term; there are not only costs that we see every day, but also collateral costs that will occur in the future, which need to be considered;
• It is not necessarily a question of monetary incentives, but the types of behaviour that becomes normalised, such as wearing a mask. In Italy, wearing of a mask has been adopted throughout the pandemic and therefore uptake is nearly universal, whereas in the UK the wearing of a mask was not said to have been vital by government authorities, so there is less observance; this can be an effective way of balancing the cost and benefit of decisions without a financial commitment;
• As restrictions are lifted, economic activity is going to increase, but there will be considerable variability by sector. Businesses that do not require person-to-person contact will see an increase in economic activity but there will still be resistance from people who do not want to personally put themselves at risk; there will be a wide heterogeneity about the personal costs and benefits of changing their behaviour;
• People will take precautions given their circumstances; the Government will allow people to undertake more economic activity, but they will not be forced to do so;
• Developed countries can create more targeted policies, looking at heterogeneity across their populations; this is more difficult to do in developing countries due to population sizes and a lack of infrastructure, which will mean policies will be less effective; developed countries need to step in to help in these circumstances; there is also a similarity when looking at the discrepancy between high net wealth and high-income people and people in lower-income employment with fewer assets in developed countries;

Conclusion:

There has been an explosion of research, and going forward, economists have identified new sources of data and there has been a lot of interaction between researchers, universities and companies with large datasets, which will help future economic models be more accurate if we are confronted by something similar in the future. There needs to be more openness about behavioural inputs which is now understood by policymakers to a larger extent.

Restarting the economy requires being able to tell people what is going to happen. People need to be made to feel more secure and confident that there is a plan in place which will enable them to keep their jobs. Otherwise, any government intervention through wages will go into savings. Most importantly, getting the infection under control will mean people will have more confidence that they can go and spend money again.

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