ALTERNATIVE VIEWS OF CONSUMER BEHAVIOUR

What does it mean for consumers to behave rationally?

Rational consumers make decisions aimed at maximising their utility, considering all available information and options.

Why might consumers not behave rationally?

Consumers may be influenced by other people, act out of habit, or have difficulty processing complex calculations.

How can the behaviour of other people affect consumer decisions?

Consumers may copy or follow others’ behaviour, influenced by trends, peer pressure, or social norms, rather than making independent utility-maximising choices.

What is meant by herd behaviour in economics?

Herd behaviour occurs when consumers make decisions based on the actions of others, often ignoring their own preferences or information.

Give an example of herd behaviour.

Buying a product because it is popular on social media, even if it is expensive or unnecessary.

What role does habitual behaviour play in consumer decision-making?

Consumers may buy the same products repeatedly out of habit, without evaluating alternatives or prices.

Why does habitual behaviour suggest consumers are not always rational?

Because choices are made automatically rather than through deliberate utility-maximising calculations.

Give an example of habitual consumer behaviour.

Always buying the same brand of toothpaste or coffee without considering other options.

What is meant by consumer weakness at computation?

Consumers may struggle to calculate costs, benefits, or probabilities accurately, leading to suboptimal decisions.

How can consumer weakness at computation lead to irrational behaviour?

If consumers underestimate costs, overestimate benefits, or misjudge probabilities, they may make choices that do not maximise their utility.

Give an example of consumer weakness at computation.

Choosing a lottery ticket because the small chance of winning seems appealing, even though expected value is negative.

How do alternative views of consumer behaviour challenge the traditional assumption of rationality?

They show that psychological, social, and cognitive factors can lead to choices that deviate from strict utility-maximisation.

What is bounded rationality?

Bounded rationality is the idea that consumers try to make rational decisions but are limited by information, cognitive capacity, and time constraints.

How does bounded rationality relate to habitual behaviour and computation weaknesses?

Consumers rely on habits or simple rules of thumb (heuristics) when they cannot process all information, leading to less-than-perfectly rational decisions.

How do these alternative views affect economic modelling?

Economists may need to include behavioural factors, such as heuristics and social influences, in models to better predict consumer behaviour.

Why is understanding alternative consumer behaviour important for policymakers?

It helps design interventions like nudges, taxes, or regulations that account for real-world decision-making, rather than assuming perfect rationality.