1.2.10. Alternative views of consumer behaviour

• What are the underlying assumptions for rational decision making?

  • Customers aim to maximize utility.
  • Companies aim to maximize profit.
  • Governments aim to maximize welfare of citizens.
• What are the three main reasons people do not behave rationally?

  1. Influences of other people (social norms).
  2. Influence of habitual behavior (habits and addictions).
  3. Consumer weakness at computation (difficulty in making comparisons).
• What is 'herding behavior' in consumer behavior?

  • Herding behavior occurs when individuals copy the actions of a large group.
  • It can lead to market bubbles, such as in the stock market.
• How do habits influence consumer decisions?

  • Habits reduce decision-making time.
  • They create barriers to considering alternatives.
  • Examples include addictions and purchasing patterns in supermarkets.
• What is consumer weakness at computation?

  • Consumers may struggle to compare prices effectively.
  • They may buy more expensive goods than necessary.
  • Poor self-control can lead to irrational decisions, such as delaying pension savings.