Consumer Behaviour Flashcards
Marginal utility
The additional utility from consuming an extra unit
Total utility
Is the total utility for consuming all units in total
What is diminishing marginal utility
As you consume more of a good, the marginal utility you get from additional units will decrease
What ate the 7 reasons for irrational behaviour
Bounded rationality
Bounded self control
Altruism
Social norms
Anchoring bias
Availability bias
Rules of thumb
What are the cognitive biases
Social norms
Anchoring bias
Availability bias
Rules of thumb
What is bounded rationality
Bounded rationality refers to our limited mental processing (our limited brain power when it comes to decision making) leading to irrational decisions
What is bounded self-control
People’s limited ability to control themselves
What is altruism
When we care about the utility of others
E.g
Waiters giving a mint to customers at the end of their meal then received 3% increase in tips.
when 2 mints are given tips increased by 14%
When waiters gave 1 mint and then returned with another, tips increased by 23%
What is herd behaviour
A herd behaviour is when people make decisions which are strongly influenced by social norms.
What is social norms
When you are influenced by What the people around you are doing
What is anchoring bias
When a consumer is influenced too much by the first piece of information they see. Such as a fake original price on a TV when putting it on a sale
E.g Black Friday sales
Consumers are hooked to large discounts but then get scammed
What is availability bias
When consumers are influenced by the most recent piece of information they see
E.g If there was a recent plane crash in the news consumers may not purchase a ticket as they may think the chances of a plane crash happening again is very high
What is rules of thumb
When consumers make mental shortcuts to make decisions quickly
What are choice architects
People who design the layout of our choices
What is framing
The way a choice is presented to you
