Shock Determination in a Two-Stage Decision-Making Model: The Case of COVID-19 in Colombia

The analysis of the pandemic and its effects have been widely studied. For instance, in Economics, most research has studied the impacts of COVID-19 on the global economy, a group of countries, or a single country, while the small-scale effects of the pandemic have not received enough attention. In this respect, we study the effects of the pandemic on consumer behavior in Colombia using monthly sales data, from January 2017 to September 2020, by groups of goods and services. To do so, we use the two-stage decision-making model proposed by Acevedo et al. (2020), which shows that consumption choice can be the result of a specific shock and the size of the probability of occurrence of the shock on each group can be computed. We show that on average the value of a probability of a given shock is zero and, therefore, there are no reasons for a consumer to change her consumption patterns. That is, the optimal choice is constant along time. However, when there is an unexpected event, such as the COVID-19 pandemic, the change in the probability of the shock is not zero anymore. As a result, consumption patterns are disrupted, and the shock can have transitory or permanent effects.