1.2.10 Alternative views of consumer behaviour

RATIONAL DECISION MAKING

• The underlying assumptions for all rational decision making is that customers aim to maximise utility, producers aim to maximise profit and govs aim to maximise social welfare

• However, people do not always behave rationally and this occurs for three main reasons:

  INFLUENCES OF OTHER PEOPLE

  INFLUENCES OF HABITUAL BEHAVIOUR

  CONSUMER WEAKNESS AT COMPUTATION

INFLUENCES OF OTHER PEOPLE

• Rationality assumes people act individually to maximise their own benefits but sometimes individuals are influenced by social norms, known as a bias

• Consumers become unwilling to change the bias, even if doing so will benefit them, if it goes against the norms of society

• 'Herding behaviour' occurs when an individual copies the actions of a large group- E.G. the stock market, and this causes huge market bubbles

INFLUENCE OF HABITUAL BEHAVIOUR

• Most people have habits and these habits reduce the amount of time it takes to do something, because consumers no longer have to consciously think about their actions

• Habits create a barrier to decision making since they limit or prevent consumers considering an alternative

• Habitual behaviour includes addictions and so this influences people's decisions

• Another habit many consumers have is buying their products at eye level so supermarkets tend to keep higher priced products near the top and lower priced products lower

CONSUMER WEAKNESS AT COMPUTATION

• Many consumers aren't willing or able to make comparisons between prices and so they will buy more expensive goods than needed- E.G. many buy multipack goods because they assume they are cheaper but this is not always the case

• Also, consumers are sometimes poor at self-control and so do things they know they shouldn't

• Similarly, consumers will make decisions without looking at the long term effects, and so make irrational decisions