Inertia
Tendency to do nothing or remain unchanged.
Alternative views of consumer behaviour
Key definitions
Computational weaknesses
Difficulty calculating probabilities when deciding.
Behavioural economics
Studies limits to rational choice.
Habit
Past behaviour influences current choices.
Social norms
Behaviour influenced by others' expectations.
Impulsivity
Valuing immediate rewards over future costs.
Utility maximisation
Consumers may aim but not always achieve it.
Nudge
Policy steering choices without bans.
Alcohol consumption
Driven by mood, habit, anxiety and social norms.
Irrational behaviour
Choices that do not maximise long-run welfare.
Key concepts
Consumers may not always maximise utility due to habit, inertia, peer effects and poor calculation.
Heavy drinkers often more impulsive than light drinkers.
Models assuming perfect rationality may overpredict behavioural responses.
Relevant tips
- Use 'aim to maximise' language when evaluating rationality assumptions.