Disputes the idea that consumers are always rational and will always look to maximize their utility
Behavioral economics
Emotional, social and psychological factors can play a very important role in influencing consumer behavior
Consumers are not always rational utility maximizing robots
Behavioral economics is very useful in adding to what traditional economics say
Behavioral economics is not a replacement for traditional economics
Where traditional economics committee let us down in explaining all real life scenarios about how consumers make decisions, behavioral economics can maybe fill those gaps and give us greater understanding of consumer decision making
Traditional economics view of consumer behavior
Consumers are always rational and they will always look to maximize their utility when they make consumption decisions
How consumers make decisions according to traditional economics
1. Gather all the information
2. Evaluate the information
3. Weigh up all the costs and benefits
4. Make a rational utility maximizing decision
Bounded rationality
Consumers don't necessarily have the time to do all of this and to make a satisfactory utility maximizing decision<|>The choice that's out there is just so large that to evaluate all the costs and benefits is too much to ask for a consumer<|>There is a lack of information, asymmetric information, or the information is not clear or complex
Bounded self-control
Consumers' self-control gets in the way of taking decisions which will maximize utility
Heuristics
Mental shortcuts or rules of thumb that provide a satisficing decision, where utility might be sacrificed but a satisfactory outcome will be the end result
Emotional, social and psychological factors that can influence decision making are known as cognitive biases
