2.4 Critique of maximising behaviours of producers and consumers Flashcards
Rational consumers
- Clear preferences
- Analytical skills
- Perfect information
- Maximise utility
Homo economicus
hypothetical person who behaves in exact accordance with their rational self-interest.
Dual Process Model
- model of consumer behaviour
- two ways of thinking System 1 + System 2
System 1 thinking
- comes automatically
- little effort and no control
- unconscious reactions and biases
System 2 thinking
- conscious, reasoned and deliberate
- not always activated
Cognitive biases
A way that human thinking and decision-making deviates from rationality
Heuristic
approach to problem solving that may not be rational but is sufficient to reach a goal
anchoring heuristic
A strategy that people use to make guesses about things they do not know, by thinking of things they do know and then making an adjustment
impact of anchoring
- willingness and ability to pay for a good can be affected by anchoring
- people may be more or less likely to buy a certain good depending on their anchors about how that good should be priced
Framing heuristic
cognitive bias where Human thinking and decision making is affected by the way a problem is stated
Availability heuristic
mental shortcut that relies on immediate examples that come to a given person’s mind when evaluating a specific topic, concept, method or decision.
E.g people more likely to buy disaster insurance if they can remember a recent disaster
criticisms of rational choice theory
Bounded rationality, bounded self control, bounded selfishness, imperfect information
Causes of bounded rationality
cognitive limitations, imperfect information, time constraints
hyperbolic discounting
tendency for people to choose a smaller-sooner reward over a larger-later reward
Restricted choice
situation where consumer choices are limited
