1.2.10 Alternative Views of Consumer Behaviour

Question 1

Why might Consumers May Not Behave Rationally?
(bounded rationality)

Answer 1

1. Influence of Other People’s Behaviour: Consumers are often influenced by the actions and choices of others, which can lead to deviations from rational behavior. Social norms, peer pressure, and conformity play a significant role in consumer decision-making. Example: In fashion trends, consumers may purchase certain clothing items simply because they are popular or endorsed by celebrities, even if those choices do not align with their individual preferences or rational utility maximization.
2. Habitual Behaviour: Consumers often rely on habits and routines in their decision-making processes. Habitual behavior can lead to suboptimal choices if consumers do not regularly reevaluate their decisions. Example: Many people have a habit of buying the same brand of toothpaste they have used for years without considering whether there are better or more cost-effective alternatives on the market.
3. Consumer Weakness at Computation: Some consumers may struggle with complex calculations or may not have access to the information needed to make perfectly rational decisions. Limited cognitive abilities or information constraints can lead to suboptimal choices. Limited time constraints can also cause irrational choices.
4. Imperfect Information: consumers may not have access to information which could help them make a rational decision