1.2.1 Rational decision making & 1.2.10 Alternative views of consumer behaviour

What are the 3 reasons why consumers may not behave rationally

1) Influence of other people’s behaviour

• peer pressure

• herding behaviour (individuals follow each other)

2) Importance of habitual behaviour

• rely on habits to speed up process of thinking

• addiction

• sellers recognise habitual behaviour & exploit them - impulse purchasing

• Consumer inertia - unbothered to move brands

3) Consumer weakness in computation

• The wider the range of choice of gds/services - harder it is for consumers to decide

Rational decision making for consumers

Consumers allocate their expenditure on goods & services to maximise utility

Rational decision making for firms

Firms allocate their resources to maximise profits from their produced goods & services

Points for essays / 6 markers in why customers don’t switch to a better product (VERY COMMON)

KAA1: Information gap

• Definition of information gap / Asymmetric information = when producers know more than consumers / suppliers lack market information (use wither depending on the context of the question) / consumers lack market information

• ie. old people - lack knowledge to research into cheaper alternatives / cannot use price comparison sites

EVAL 1: In long run, information gap may narrow…

KAA2: Irrational behaviour

• Definition of irrational behaviour = actions/decisions that are not based on logic or reason - consumers not maximising utility to the fullest potential…producers…

• Brand loyalty = loyal to brand due to consumer inertia

  • consumer inertia = unbothered to move brands due to no time & motivation to

• Habitual behaviour = rely on habits to speed up the process of thinking

  • ie. have a tendency to purchase more food as they are used to thinking that having a lot is better than having little

EVAL2: In long run, consumers will eventually notice…/other factors (ie. misleading advertisement from firms)