Alternative view of consumer behaviour 1.2.10

What assumptions are free-markets built on?

Rational decision making e.g. selecting the choice that brings the highest benefits

However - this view is flawed - consumers are often more influenced by other things rather than a rational computation of net benefits

What are these 3 alternative influences?

1. The influence of other people's behaviour

2. The importance of habitual behaviour

3. Consumer weakness in computation

Explain the influence of other people's behaviour

• Peer pressure often prompts consumers to make purchasing decisions that may go against a computation of net benefits. Consumers tend to exhibit herding behaviour

• Producers influence consumers' choices e.g. advertising, celebrity endorsements + influencer culture

  Results in emotional decisions - not necessarily rational decisions e.g. consumers purchasing the branded Nurofen when they could purchase the much cheaper (and essentially identical) Ibuprofen

Explain the importance of habitual behaviour

• Consumers use information from the past, which may be outdated, as they habitually purchase the same products, e.g. visiting the same sections in a supermarket for several years

• Consumer inertia often develops as convenience is prioritised

• Sellers recognise habitual patterns and exploit them. For example, products placed at the checkout till to benefit from impulse purchasing (chewing gum)

Explain consumer weakness in computation

• Wider range of choice = harder for consumers to gather information + compute which one offers the highest net benefits

• Consumers - often lack time or ability to consider relative prices of different products - sellers will frequently make it difficult for them to do so e.g. Products the seller wants to sell are placed at eye level where computation is easy - Many products that would deliver higher benefits = placed below knee level/high on the shelf where computation is harder