Alternative View Of Consumer Behaviour

Question 1

What does rational mean in classical economic theory

Answer 1

In classical economic theory, the word ‘rational’ means that economic agents are able to consider the outcome of their choices and recognise the net benefits of each one
Rational agents will select the choice which presents the highest benefits

Question 2

Why is the assumption of rational decision making flawed

Answer 2

In many ways, the assumption of rational decision making is flawed. Consumers are often more influenced by the following than a rational computation of net benefits
The influence of other people’s behaviour
The importance of habitual behaviour
Consumer weakness in computation

Question 3

What are ways that peoples behaviour can get influenced

Answer 3

Peer pressure often prompts consumers to make purchasing decisions that may go against a computation of net benefits

Question 4

How do producers influence consumer choices?

Answer 4

Producers influence consumers choices through various forms of advertising, including lifestyle, celebrity endorsement and influencer culture
This results in emotional decisions and not necessarily rational decisions e.g. consumers purchasing the branded Nurofen when they could purchase the much cheaper (and essentially identical) Ibuprofen

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

Question 5

Explain the importance of habitual behaviour

Answer 5

Consumers make so many purchasing decisions that they often rely on habits to speed up the process
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Consumers use information from the past, which may be outdated, as they habitually purchase the same products e.g. visiting the same sections in a supermarket for several years

Question 6

What is consumer inertia?

Answer 6

Consumer inertia often develops as convenience is prioritised
Consumers make purchasing decisions that directly harm them and are usually addictive, for e.g. alcohol
Sellers recognise habitual patterns and exploit them. for example, products placed at the checkout till to benefit from impulse purchasing (chewing gum)

Question 7

Explain consumer weakness at computation

Answer 7

The wider the range of choice, the harder it is for a consumer to gather information and compute which one offers the highest net benefits
Consumers often lack the time or ability to consider the relative prices of different products and sellers will frequently make it difficult for them to do so
Products the seller wants to sell are often placed at eye level where computation is easy
Many products that would deliver higher benefits are placed below knee level or high on the shelf where computation is hard