Behavioral recovery

The economic inflection coming up will be at the time of re-opening. It seems to be assumed that when the doors to business start swinging once again, there will be a recovery, the expected shape of which – V, U, or L (each letter more or less depicting the growth curve after the hiatus) – depends on timing and, perhaps, some differences between sectors. I believe this is overly simplistic.

First off, the economy is a multi-sided market. It isn’t enough for the doors to open, the customers have also to show up. It isn’t enough for the customers to show, the systems have to work, the shelves have to be stocked, the staff must be properly prepared and, in some cases, (re)trained.

Secondly, it isn’t enough for all of the listed conditions and some others to be satisfied. To forecast marketplace behavior with some level of correctness, its unit economics have to be at least somewhat accurately measured. While this is to a large extent dependent on the previously mentioned factors, the difficulty lies in ways these factors interact and push or pull each other. There is some reflexivity involved, with causes and effects that can be circular, compounded by the challenge of a multitude of levels – behavioral, technical, financial – each with its own set of causes and effects, intertwined.

When an economy, like a marketplace, is mature, these variants and value drivers are stabilized by data. There is a history to look to, and it’s likely that over time the possibilities have settled in a narrow band of sorts, which likely narrowed with the length of time and richness of the data. When a marketplace is in its early stages, though, when there is no data or when this is limited in time as well as depth, the bands are wide and forecasts at best unreliable.

Had the hiatus been short-lived, a case could have been made, and was, that the restart could take place almost as though nothing had really changed. But the timing of the restart now seems not to be so short, and what may be worse is that it is unknown… or possibly it only feels like a mysterious eternity in isolation… How it feels and how it is aren’t unrelated pieces, though, in a calculus where the growth of the marketplace is ultimately a function of engagement, which is ultimately psychological.

Thirdly, thus, there is the biggest and most unpredictable aspect of anticipating the economic bounce: behavior. The economic restart and its shape is veiled in this infinite mystery.