Behavioural insights

Question 1

Bounded rationality

Answer 1

Challenges the assumption of utility maximisation

Question 2

Why Bounded Rationality?

Answer 2

The ability to maximise utility is undermined by:
- The difficulty of the problem requiring a decision
- The cognitive capability of the mind
- The time available to make a decision
- The amount of choice
- Bounded self-control , even if the consumer knows all the info, their self control is overcome e.g. addictive goods

Question 3

Consumers follow heuiristics

Answer 3

• The constraint on utility maximising gives rise to the heuristic satisficing
• Utility will be sacrificed but a satisficing outcome will be the result
• A decision that is easy for consumers to make

Question 4

Heuristics definition

Answer 4

• Cognitive shortcuts or rules of thumb that simplify decisions, especially under conditions of uncertainty