1.2.10 Alternative views of consumer behaviour

Question 1

The reasons why consumers may not behave rationally:
consideration of the influence of other people’s behaviour

Answer 1

rationality assumes people act to maximise individual utility but sometimes individual are influenced by social norms (bias). i.e. someone may buy something to fit in. due to this consumers become unwilling to change, even if changing will benefit them, if it goes against the norms of society

herding behaviour occurs when an individual copies the actions of a large group
- one example includes the stock market and this causes huge market bubbles

Question 2

The reasons why consumers may not behave rationally:
the importance of habitual behaviour

Answer 2

most people have habits and these habits reduce the amount of time it takes to do something

habits create a barrier to decision-making since they limit or prevent consumers considering an alternative

Question 3

The reasons why consumers may not behave rationally:
consumer weakness at computation

Answer 3

many consumers aren’t willing or able to make comparisons between prices and so they will buy more expensive goods than needed

one example being energy contracts