defintions

Question 1

Bounded rationality

Answer 1

This is the idea that consumers’ ability to make decisions is limited by:
• The amount of information they have,
• Limited time to make a decision, and / or
• Limited ability to evaluate utility and usefulness.

In other words, consumers are rational – they try to make best choices. But, they rarely arrive at a perfect solution. Instead we try to make a reasonable attempt to get a satisfactory choice.

Question 2

Bounded self-control

Answer 2

This is an idea that consumers have difficulty in limiting their choices. For example, because we like food, we may overeat, or we may fail to plan for the future by saving for our retirement.

Question 3

Framing effect

Answer 3

This states that consumer choices will be influenced by how information is presented.
• For example, 10% of our customers are not fully satisfied – implies a negative connotation. Nine out of ten of our customers are fully satisfied – is a much more positive spin.
• Saying the cost of gym membership at £500 a year sounds a lot. However, saying it costs just £1.37 a day sounds more attractive to consumers.