Consumer behaviour Flashcards
behavioural economists
emotional, physiological and social factors influence decision making
= rejects rationality and utility maximisation
traditional economists
consumers always rational and maximise utility when making decisions
= gather all info, take time to weigh up pros and cons to evaluate decision
reasons for bounded rationality
- too little time
- too much choice= overwhelming
- lack of info
describe bounded self control
may force consumer to make irrational decision that wouldn’t actually maximise utility e.g. go gym or eat healthy
define anchoring
psychological pricing strategy that uses an initial price point, or “anchor”, to influence a consumer’s perception of value and subsequent purchasing decisions
define social norms
rules society dictates e.g. tips at restaurants
define availability bias
people make judgments about the likelihood of an event based on how easily an example, instance, or case comes to mind
define loss aversion
people tend to avoid losses more than they seek equivalent gains
list cognitive biases
anchoring, availability bias, social norms, framing, loss aversion
define choice framing
choices will be influenced by how information is presented
define herd behaviour
make decision because people around have
list ways for gov to influence choices
- choice framing of how info presented
- nudges on placement of goods
- default choice
- restricted choice through laws e.g. public smoking ban
- mandated choice= make a decision within a set of options
disadv of gov policies like nudges
- too paternalistic= gov may have too much control and influence over individual’s choices
- unpredictable and costly= no guarantee policies will work
- are they strong enough policies?= may need to tackle deep rooted causes of issues first
- may change people’s choices but these choices may not reflect people’s true preferences
- based on relatively weak evidence, which may not be consistent over time
- may not be as effective as traditional policies
evaluation of gov policies like nudges
- costs vs benefits e.g. risk of gov failure
- info provision better? could fix deep rooted issues better
- show and forceable policies can fix deep rooted market failures better e.g. tax and subsidies
traditional economic policies
- taxes
- subsidies
- max and min price
behavioural economic policies
- framing like showing calories next to unhealthy food
- nudges of where goods must be shown
- restricting choice e.g. can’t smoke in public places
describe income effect
- refers to the change in the quantity demanded of a good or service resulting from a change in the consumer’s real income (or purchasing power) due to a change in the price of the good
- when the price of a good falls, the consumer’s real income increases because they can now afford more of the good or other goods with the same income
- if the price of a good falls, consumers may feel richer and increase their consumption of that good or other goods
describe the substitution effect
- refers to the change in the quantity demanded of a good when its price changes, making it more or less expensive relative to other goods
- consumers will substitute away from more expensive goods in favour of cheaper alternatives
- when the price of a good falls, it becomes relatively cheaper compared to substitutes, leading consumers to buy more of it
= consumers may substitute this cheaper good for other, relatively more expensive goods - if price rises, they may substitute away from it in favour of cheaper alternatives
define normal good
a product or service whose demand increases as consumer income rises, and decreases as consumer income falls
define inferior good
a good whose demand drops when people’s incomes rise
