1.2.10 Alternative Views Of Consumer Behaviour

Question 1

Bounded rationality

Answer 1

• consumers and businesses have limits on information, time and abilities when making decisions and so might not seek the best possible outcome
• in which we attempt to satisfy rather than optimise (seek a decision that will be good enough not the best possible option)

Question 2

Herding

Answer 2

in which individuals act collectively as part of a group, making decisions that they would not make as an individual (e.g choosing items off the menu, supporters of football clubs, rating systems)

Question 3

Why is herding irrational/ result in an inefficient outcome?

Answer 3

It makes us less rational and damage our ability to make rational decisions

Question 4

Habitual behaviour

Question 5

Heuristics

Answer 5

mental shortcuts of rules of thumbs for decision-making to help people make a quick, satisfactory decision.

Question 6

Kahneman’s type 1 thinking

Answer 6

impulse/ rapid decision (decisions made on auto-pilot)

Question 7

Kahneman’s type 2 thinking

Answer 7

slow, careful, effortful and thought out decisions

Question 8

Why do heuristics result in a non-optimal outcome?

Answer 8

it is making a quick, satisfactory, but not perfect, decision. It is optimal behaviour not maximising behaviour

Question 9

Nudge theory

Answer 9

a minima subtle change to the environment to alter behaviour in an easy way without reducing the number of choices available (e.g putting fruit at eye level)

Question 10

Weakness at computation

Answer 10

• when the consumer’s decisions are dominated by computation weakness
• e.g finding it difficult to calculate the probability of something happening when making the purchase decision

Question 11

Weakness at computation example

Answer 11

• some consumers will still eat more food than gives them optimal benefit
• particular prices relative to mass (the best option for value)

Question 12

Loss aversion

Answer 12

• when a loss is more painful than an equivalent gain is rewarding
• consumers hate losing (e.g having to pay 5p for a plastic bag is more effective than getting 5p off your groceries)

Question 13

Hyperbolic discounting

Answer 13

Valuing immediate benefit or cost more than any future impact

Question 14

Choice overload

Answer 14

When there are too many options to make a fully-informed rational decision

Question 15

Gambler’s Fallacy

Answer 15

Belief that future probabilities are altered by past events when in fact they are independent

Question 16

Social norms

Answer 16

Day-to-day behaviour influenced by prevailing customs

Question 17

Anchoring

Answer 17

When we are influenced in an exaggerated way by the first piece of information received.

Question 18

Endowment effect

Answer 18

When we value things we own more than the things we do not own

Question 19

Framing

Answer 19

When a decision is based on how information and data is presented to us
(e.g the pricing at 5.99 rather than 6)

Question 20

Scarcity bias

Answer 20

We value things that more limited in number or are only available for a short time

Question 21

Behavioural economics

Answer 21

Applying psychological insights into human behaviour

Question 22

Status quo bias

Answer 22

Preference to keep things the way they are

Question 23

Sunk cost effect

Answer 23

People tend to consume what they have prepaid for even if it does not make sense to do so

Question 24

Social proof

Answer 24

When an individual looks to the behaviour of their peers to inform their decision-making