16 Chapter II Literature Review This chapter provides previous literature related to this study. This chapter also contains a summary of the state-of-the-art table. At the end of this section, some hypotheses will be constructed to explain this research's position. II.1 The COVID-19 pandemic and Vulnerability Consumer vulnerability refers to the challenging situations consumers face, where they lack control over themselves and depend on external factors (Yazdanparast & Alhenawi, 2022). It can occur when a person is powerless, out of control, and dependent on consumption situations that negatively affect their identity. Consumer vulnerability is an imbalance in market interactions or marketing influences, leading to helplessness and dependence. It is a complex and multidimensional condition associated with hampered consumption goals, impacting personal and social perceptions. It is not the same as unmet needs, consumer protection, discrimination, prejudice, or harm. Vulnerability is not just about protected or disadvantaged consumer groups; it is about losing control and facing obstacles in the consumer environment. It differs from harm in that it is more about restrictions on agency and choice than on specific characteristics that limit value attainment (Baker, et al., 2005). The vulnerability arises from individual states, characteristics, and external conditions that may hinder consumption goals and impact personal and social perceptions of self. For example, victims of natural disasters experience consumer vulnerability due to fear for their safety and loss of property (Baker, et al., 2007). Baker et al. (2005) emphasize the individual's experience of vulnerability and define it as a state, not a status, that includes solid fears and worries. Vulnerability is an experience that individuals actively seek to reduce as they pursue a return to normal life. Although vulnerability is a state, not a status, communities and individuals can remain vulnerable for relatively long 17 periods (Baker, et al., 2005). Complex recovery efforts mandated by natural disasters can perpetuate experiences of vulnerability for both individual community members and society. The COVID-19 pandemic has caused significant psychological impacts globally, including stress and depression, due to the health and life threats, fear of essential supply shortages, reduced social interaction, government powerlessness, and misinformation (Campbell & Murphy, 2020; Corbet et al., 2021; Galoni et al., 2020). Previous research on vulnerability has examined the relationship between resource scarcity, decision-making, and vulnerability (Briers et al., 2006; Hamilton et al., 2019). Scarcity is defined as a subjective feeling of having more needs than available resources, while resources are described as assets one wants to achieve as a desired end state (Mullainathan & Shafir, 2013; Dorsch et al., 2017). Hill and Sharma (2020) state that many resources contributing to vulnerability can be grouped into individual, interpersonal, and structural resources. Individual resources include money, intelligence, and physical and mental health, while interpersonal resources refer to social factors like social capital and support. Structural resources include market and environmental factors such as standard business practices, laws and enforcement, and market space configurations. According to (Baker, et al., 2007), vulnerability model identifies individual and community characteristics and external conditions as factors influencing the experience of vulnerability and leading to changes in behaviour, values, and policies. Hill and Sharma (2020) also recognize the various potential consequences of vulnerability when consumers try to cope with their situations and categorize their coping mechanisms as non-defensive (i.e., submitting to the situation) or defensive mechanisms (i.e., resisting or fighting the situation). Both mechanisms reflect some behavioral change compared to the pre-susceptibility state. 18 It is in line with (Baker, et al., 2007) vulnerability model, recognizing changes in behavior, values, and policies as a consequence of vulnerability. Following the previous study, this study used psychological reactance theory (Brehm, 1966) to explain this behavior. According to this theory, when something threatens or eliminates a person's behavioral freedom, they experience a psychological reaction, a motivational state that promotes the restoration of freedom (Rosenberg & Siegel, 2018). Threats to the freedom to control one's life can come from various sources, including severe adversity and crises, and people's reactions include psychological and behavioral changes (Campbell, 2006). For the most part, vulnerable individuals react in ways that depend on their perception of the malleability of a particular context and their long- term prospects for improving their situation by gaining more resources or control. Therefore, understanding the factors that influence vulnerability can help develop strategies to manage attitudes and financial decisions during times of crisis to avoid financial difficulties. II.2 The COVID-19 Pandemic and Change in Financial Behaviour COVID-19 causes economic uncertainty. It causes various shocks and impacts personal financial conditions, such as decreasing the value of assets and wealth, increasing cash outflows, and decreasing cash inflows (Zhao, et al., 2023). Existing literature focuses on individual behavior and decision- making during crises. However, the financial crisis accompanying the COVID-19 pandemic differs from previous financial crises in two ways. First, unlike previous financial crises, this crisis is unpredictable, with no clear trajectory or finish line. Second, a pandemic is an epidemiological and psychological crisis. It means that this not only impacts people's finances but also their perceptions and views. This crisis has destroyed the economy 19 and household finances, damaged people's way of life, and changed their perceptions and outlook (Campbell & Murphy, 2020). Kirk and Rifkin (2020) argue that individual reactions to the pandemic can be classified into three consecutive phases: resistance, coping, and adaptation. Previous theoretical efforts created a global and general perspective on consumer behavior during the COVID-19 pandemic. These efforts seek to propose possible stages in behavior, compare old and new consumption habits, or explain behavior based on similarities to crises and other disruptive events, such as pandemics, wars, or other natural disasters (e.g., Kirk and Rifkin, 2020; Sheth, 2020; Zwanka & Buff, 2020). Liu et al. (2020) used data from the Survey of Research Center for China Household Finance (CHFS) to investigate the impact of the pandemic on Chinese household consumption. They report a significant decline in household consumption during the outbreak period and show that urban households are more vulnerable than rural households. Yazdanparast and Alhenawi (2022) found that the response to the COVID-19 pandemic to changes in overall consumption decisions varied among several societies. For example, South Africans allocated less consumption expenditure during the pandemic than before. Meanwhile, the British population generally consumes more during a pandemic. Meanwhile, the level of vulnerability experienced positively affects changes in consumption expenditure.