1.2.10 Alternative views of consumer behaviour

• Consumers do not always act rationally
• Acting rationally


  Making a decision that results in the most optimal level of utility or benefit for the consumer
• Rational consumer (Homo Economicus)


  A utility maximiser who makes rational decisions
• Reasons consumers do not act rationally


  • The influence of other people's behaviour
  • The importance of habitual behaviour
  • Consumer weakness at computation
• There are two restaurants, one empty and one with a long queue


  Consumers are more likely to queue for their food than go straight into the other restaurant
• Other people's behaviour


  Creates a bias within the consumer, encouraging them to do things they would not otherwise do or that could be harmful, making them unwilling to change even if it benefits them, if it goes against social norms
• Habits


  Reduce the amount of time it takes to do something, because consumers no longer have to consciously think about their actions, creating a barrier to making decisions and limiting consideration of alternatives
• Habits


  • Commute to work
  • Smoking
  • Spending in the present rather than saving for the future
• Breaking a habit


  Causes withdrawal symptoms in the consumer, making them feel uncomfortable and continue the irrational action
• Consumer weakness at computation

  Consumers are unable to exercise self-control with some decisions, continuing to consume beyond the point of optimal benefit
• Consumers know saving for pension benefits them in the long run


  But this limits their spending in the short run, instilling fear and leading to procrastination and irrational decisions