My Take | Mass panic behind global supply chain crisis
- A decades-old experiment at the MIT’s business school offers unique insights into how fear and distrust can cause panic ordering, similar to panic buying, that mimics the current world crisis
The global supply chain crisis may have a lot in common with a bank run and a rush into liquidity by investors during a stock market crash. That is a fascinating insight gleaned from an experiment on a group of first-year executive MBA students at MIT’s famed Sloan School of Management.
The experiment, called the Beer Game, has been running for decades for students to show how supply chains actually work – and can be disrupted. But this year’s results, first reported by Bloomberg, are especially relevant, in light of the current crisis.
People have been talking about the current crisis as if it’s caused purely by physical limits and shocks within the system. But people’s psychology – producers, distributors, agents, wholesalers, retailers and customers – may be just as important. As a French Cartesian might say, it has both an objective and a subjective dimension.
In a bank run, if you are a depositor, you wouldn’t bother to read up on its financial statements to determine if its business is viable; you just want to take your cash and run. When stocks start to crash, your first reaction is to want to sell, sell, sell; assuming you are not a short-seller.