1.2.10 - Alternative views of consumer behaviour

Question 1

What are the underlying assumptions for all rational decision making?

Answer 1

• Customers aim to maximies utility.
• Companies aim to maximise profit.
• Government aim to maximies the welfare of citizens.

Question 2

Reason one why people do not always behave rationally.

Answer 2

Influences of other people:

• Peer pressure, as well as social norms/trends often prompts consumers to make purchasing decisions that may go against a computation of net benefits.
  e.g someone may buy something to fit in.
• Producers influence consumers choices through various forms of advertising, including lifestyle, celebrity endorsement and influencer culture

Producers use advanced behavioural psychology techniques to influence consumer choices e.g. Neuro branding.

Question 3

Reason two why people do not always behave rationally.

Answer 3

Influence Of Habitual Behaviour:

• Most people have habits and these habits reduce the amount of time it takes to do something, as consumers no longer have to consciously think about their actions. Habits create a barrier to decision making since they limit or prevent consumers making an alternative decision.
• Consumer inertia often develops as convenience is prioritised.
• e.g people drinking alcohol and smoking cigarettes even though they know its bad for them.

Question 4

Reason three why people do not always behave rationally.

Answer 4

Consumer weakness at computation:

• Many consumers aren’t will or able to make comparisons between pries so they will buy more expensive goods than needed, e.g many customers buy multipack goods because they assume they are cheaper but this is not always the case.
• Many consumers will also make decisions without looking at the omg term effects, and so make irrational decisions. e,g consumers not saving for their pensions.