1.2 - Alternative views of consumer behaviour Flashcards
How markets work
1
Q
Reasons why consumers may not behave rationally
A
1) Influence of other people’s behaviour
2) Habitual behaviour
3) Consumer weakness at computation
2
Q
Explain influence of other people’s behaviour on consumers acting rationally
A
- Consumers are often influenced by the actions and choices of others,
- which can lead to deviations from rational behaviour.
- Social norms, peer pressure, and conformity play a significant role in consumer decision-making.
> 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 through various forms of promotion, such as advertising, celebrity endorsements
> This results in emotional decisions and not necessarily rational decisions
3
Q
Explain habitual behaviour as a reason that may stop a consumer acting rationally
A
- Consumers often rely on habits and routines in their decision-making processes to save time
> Using rule of thumb refers to a short cut that makes a quick estimation of benefits without gathering too much information
> Consumers use information from the past, which may be outdated, as they habitually purchase the same products - Consumer inertia often develops as convenience is prioritised
- Sellers recognise habitual patterns and exploit them.
> Habitual behaviour can lead to suboptimal choices if consumers do not regularly reevaluate their decisions.
4
Q
What is consumer inertia?
A
The tendency of some consumers to continue buying a product when superior products exsist
5
Q
Explain consumer weakness at computation as a reason for why consumers may behave irrationally
A
- Some consumers may lack:
- time or ability (perhaps have limited cognitive ability) to consider the relative prices of different products and sellers or
- access to the information needed
> unable to make perfectly rational decisions
