1.2.10 - Alternative views of consumer behaviour

• The underlying assumptions for all rational decision making is that customers aim to maximise utility, companies aim to maximise profit and governments aim to maximise welfare of citizens. However, people do not always behave rationally and this occurs for three main reasons:

  • Influences of other people
  • Influence of habitual behaviour
  • Consumer weakness at computation
• Influences of other people: Rationality assumes people act individually to maximise their own benefits but sometimes individuals are influenced by social norms, known as a bias. For example, someone may buy something to ‘fit-in’ or because everyone else has it, and so they are expected to too
• Influence of habitual behaviour: Most people have habits and these habits reduce the amount of time it takes to do something, because consumers no longer have to consciously think about their actions. Habits create a barrier to decision making since they limit or prevent consumers considering an alternative.
• Consumer weakness at computation : Many consumers aren’t willing or able to make comparisons between prices and so they will buy more expensive goods than needed, for example many customers buy multipack goods because they assume they are cheaper but this is not always the case