A Debate on Consumer Rationality - Essay Example

A Debate on Consumer Rationality School A Debate on Consumer Rationality Introduction Consumer Psychology stands an interdisciplinary topic combining the theories and research approaches from Psychology, Advertising, Marketing, Economics, Anthropology and Sociology. Consumer behavior analysis is deemed to be the basis of a fruitful marketing strategy. Consumer behavior is the emotional and mental procedures and the noticeable behavior of users/consumers during searching, buying and post consumption of a goods and services (Batra & Kazmi, 2004). Similarly, consumer behavior refers to the decision and action process of individuals who buy products and services for private consumption (Engel, 1990). It is quite obvious today that the concentration of various groups, including researchers spanning economics, mathematical psychology, social psychology and marketing has been captured by the choice process of the individuals. Though, there are almost infinite contexts, that are characterized by the choice process, the choice behavior that is enacted in the consumer-market area is mainly relevant for practicing marketing managers. Generally, the choice process and particularly, the consumer choice have been researched quite well. The consumer choice efficiency theory has got strength from a maxim inside rationality’s larger assumptions in the process of decision making implanted in both the mathematical psychology and the social psychology. The axiom comments that the consumers show rationality in choosing brands which are economically more efficient. Consumer Psychology Consumer psychology is the understanding as to what are the reasons that are responsible for, and methods employed by groups and individuals who get engaged in consumer activities. This discipline largely focuses on the process involved and the cognitive processes when people buy products and services and use these products and services. Explaining consumer behavior will truly be difficult without having the knowledge as to how people subsequently act after getting and processing relevant information (Jansson-Boyd K. 2010, p. 1). Looking at the routine life of people, human beings are continually exposed to various aspects of consumption. Travelling on a train, advertising, grocery shopping, watching television, listening to music, surfing the Internet, reading a book, and clothes shopping are all instances of things that are consumed by people (Jansson-Boyd K. 2010, p. 2). The way people engaged in consumption signifies the importance of studying consumption carefully by everyone who is interested in human behavior, whether the interested person is a marketer, psychologist, consumer behaviourist, sociologist or an anthropologist (Jansson-Boyd K. 2010, p. 2). Consumer Rationality The word rational consumer refers to a person who bases his decisions on a process of making choices that will result in the maximum level of utility or benefits to him. All the goods and services chosen by the consumers for use must have been involved in a process of decision making. Most manufacturers and marketers desire to see the consumers making decisions that are based on solidly upon the information presented to them. However, the process involving decision-making is not so simple. Many other factors, along with the information consumers are provided with, also come forward when consumers decide what to buy (Jansson-Boyd K. 2010, p. 131). The conventional economic theories are mostly based on the assumption that a consumer who takes part in an activity/action is always rational in their behavior. In economics, as defined above, rationality means the existence of a consumer’s ability to gain maximum utility (Shugan, 2006, p. 2). In traditional economic theory rationality is implicitly defined as the utility maximization expected from a consumer and a set of explicit axioms that is sufficient for the existence of the utility function. It is defined by the econometric literature as maximization of utility along additive individual-specific error term. While the definition of the Game-theoretic applications say that rationality, with this high level assumption, is the choice of good behavior, actions, and so on. The above stated are some theoretical definitions and hence, to get a clear idea of rationality, some realistic view of rationality will also be needed. This side of the argument needs careful analysis of the data obtained from different realistic experiences on different individuals. A major test for this would be to ascertain whether the outcomes can be predicted accurately by the model in the given circumstances, at least, better compared to that done without the model. Another way to look at the assumptions taken would be to ascertain whether the assumption offers considerable conditions at the time the conclusions of the model are being justified. The viewpoint for every model type (e.g., descriptive, normative, statistical, aggregate, disaggregate, behavioral, etc.) holds true. Here it is not relevant whether the assumptions modeled are all fine approximations for all the situations or most of the situations, even. The question to consider is whether the results obtained from the model can be applied in a plenty of situations so that application and publication of the model are justified by the contribution. It is hoped that the conditions are significantly fine approximations to enable the model predict accurately in a variety of real world situations. Are consumers Rational? Considering as to in what way heuristics influence upon the decision-making, it would seem like consumers have not got the ability to be rational. But, researches in various parts show that deciding whether consumers are rational or not it is not as simple as saying that that consumers are or are not rational. The different studies carried out for deciding about the rationality of the consumers indicate that consumers make different decisions at different times at times. They may be use objective reasoning sometimes while may appear to choose non-logical sort of decision-making. This is obvious from two different studies directed by Hsee. He showed in one study that people do not decide rationally all the times (Hsee, 1999). Hsee offered his members a to choose from two chocolates, one shaped similar to a cockroach, worth $2 and larger in size) and the other one shaped like a heart, smaller than the cockroach shaped chocolate and having a value of only 50 cents. Choosing the cockroach like chocolate was argued to try and induce the feelings of repugnance in the members. Generally, it was expected that most of the people would reject the chocolate shaped like cockroach on the first sight and opt for the one shaped like heart, but Hsee’s investigations depicted otherwise. The results were showing that majority of the members (64 per cent) opted for the chocolate cockroach. Now, what was the reason people chose those shaped like cockroach even when they do not like its shape. One clarification may stand that the members sensed that they had to remove their feelings of repugnance in their lives for the cockroach as they thought that acting upon such emotional state might look like as irrational. Being put off just due to cockroach shape did not seem to be impartial and therefore, irrespective of how solid those feelings for the cockroaches were, the members could not defend taking the chocolate shaped like heart (Jansson-Boyd K. 2010, p. 138). Alternatively, the other reason may be that individuals do not care considerable about the look of the chocolate and are eager to mock pretty much whatsoever (Jansson-Boyd K. 2010, p. 139). Discussion and Conclusions The experimental studies do appear to show, possibly not unexpectedly, that not all customers create economically efficient choices. However, it is shocking that such a considerably large portion of the customers does look to prefer brands mainly from those that stretch out on the Pareto-frontier. As a result, the suggestion of the models based on the maxim of individual end user/consumer rationality may be extra generalizable than formerly conjectured. An additional appealing outcome arising from the untried research is the prospective for identifying customers who formulate economically efficient decisions. A segmentation of the customers by the side of such shape seems to seize promise, particularly in the field of optimal product design. It is of a little interest to note to discover that a big part of the subjects crossways different populations and merchandise categories are incapable of making such estimations, even when the subjects, as the case under consideration, are looked at through the process of estimating the mainly economical acquisition/purchase. This discussion, backed up by the facts of an older study work by Friedman (1972) on unit pricing, looks to propose that possibly the single way to stay away from such large customer welfare losses may be through extended policy initiatives for example public education programs. In addition, the customer welfare losses can be bigger than their pure statistical approximates of the population. To say in more simple and clear words, the aforesaid losses may further be compounded by the amount for the "incompetent" customers. To place it in a different way, as both the mathematical psychology (conjoint) and social psychological (TRA) models forecast consumer choices improved for the efficient deciders, it is merely normal and natural that services and products will keep on to be better considered and targeted to this grouping. Yet, it can now be probable through using models based on Data Envelopment Analysis (DEA) to recognize customers who may not have the capability to employ in the necessary cognitive dispensation of information. This may result in leading to the improved targeting of communal policy programs. Whatever the case may be, it is obvious that the idea of efficiency or inefficiency of customer choice needs further study, particularly given the outcome that the predictive soundness of both the theory of traditional conjoint analysis and reasoned action for the alone rational customer section is considerably higher compared to that for customers who are unable to make relatively efficient choices. References Shugan S. M. (2006) Are Consumers Rational? Experimental Evidence? Balakrishnan P. V., Taraajan R. N. & Desai A. (2000) Consumer Rationality And Economic Efficiency: Is The Assumed Link Justified? Batra, S, K & Kazmi, S,H,H ( 2004), Consumer Behaviour- Text and Cases, New Delhi: Excel Books Engel, J, F, Blackwell, R, D & Miniard, P, W, (1990), Consumer Behaviour London: Dryden Press Hsee, C.K. (1999). Value-seeking and prediction-decision inconsistency: Why don’t people take what they predict they’ll like the most? Psychonomic Bulletin and Review, 6, 555–561. Jansson-Boyd, K. (2010) Consumer Psychology Maidenhead; Open University Press Read More