Alternative Views of Consumer Behaviour (Edexcel A Level Economics A)

Alternative Views of Consumer Behaviour

• Free markets are built on the assumptions of rational decision making

• In classical economic theory, the word 'rational' means that economic agents are able to consider the outcome of their choices and  recognise the net benefits of each one

  • Rational agents will select the choice which presents the highest benefits

• In many ways, the assumption of rational decision making is flawed. Consumers are often more influenced by the following than a rational computation of net benefits

  • The influence of other people's behaviour

  • The importance of habitual behaviour

  • Consumer weakness in computation

The influence of other people's behaviour

• Peer pressure often prompts consumers to make purchasing decisions that may go against a computation of net benefits. Consumers tend to exhibit herding behaviour

• Producers influence consumers' choices through various forms of promotion, such as advertising, celebrity endorsements and influencer culture

  • This results in emotional decisions and not necessarily rational decisions e.g. consumers purchasing the branded Nurofen when they could purchase the much cheaper (and essentially identical) Ibuprofen

• Producers use advanced behavioural psychology techniques to influence consumer choices e.g. Neuro branding

The importance of habitual behaviour

• Consumers make so many purchasing decisions so they often rely on habits to speed up the process

  • Using rule of thumb refers to a short cut that makes a quick estimation of benefits without gathering too much information

  • Consumers use information from the past, which may be outdated, as they habitually purchase the same products, e.g. visiting the same sections in a supermarket for several years

• Consumer inertia often develops as convenience is prioritised

• Consumers make purchasing decisions that directly harm them and are usually addictive, for e.g. alcohol

• Sellers recognise habitual patterns and exploit them. For example, products placed at the checkout till to benefit from impulse purchasing (chewing gum)

Consumer weakness at computation

• The wider the range of choice, the harder it is for a consumer to gather information and compute which one offers the highest net benefits

• Consumers often lack the time or ability to consider the relative prices of different products and sellers will frequently make it difficult for them to do so

  • Products the seller wants to sell are often placed at eye level where computation is easy

  • Many products that would deliver higher benefits are placed below knee level or high on the shelf where computation is harder