Economics

Why do we behave irrationally and in a way that does not benefit us as consumers? Interview with Miss Watkins

Irrational behaviour for consumers is when consumers do not act to maximise their utility and instead will act quickly and without thinking due to 3 main reasons: bounded rationality, social norms and habitual behaviour.

Bounded rationality is the idea that a consumer is limited by one or numerous factors, preventing them from having a sufficient amount of information in order to be able to make a rational decision. It can however also be caused by any sort of pressure such as time that forces the consumer to act quickly and without being able to fully acknowledge what they have signed themselves up to. An example of this being if a consumer wanted to buy a second-hand car and was not told that after certain mileage the car can rust or break down. This would be a case of assymetric information, in other words not being informed fully of the condition of the car. This case could have been prevented had the right questions been asked of course. However, if time pressure was another factor involved, it’s impossible to say that the same decision would not be reached under the same circumstances. Therefore, adding to the example, you are now being told that this vehicle is in superb condition and that this type of vehicle is in short supply, you are also running extremely late for your work and know that if you don’t make up your mind about the vehicle now you may face disciplinary issues at work! Would you stay to find out more information about this vehicle before its purchase or would you take your chances and buy it on the spur of the moment?

Habitual behaviour is when people follow the same routines, repeating them on a regular basis. Habitual behaviour plays an important role in almost everyone’s day as it a common characteristic all humans have. This is due to the fact that be it work or school, almost every human will have a place they go to 5 days a week, following the same travel route and possibly the same coffee/breakfast routine. The issue with this is that if a firm were to increase the price of their latte from £2.50 to £3.10 in order to maximise their profit, many consumers would not realise this change in price due to such a strong habit of simply tapping their contactless credit card onto the reader without thinking and ensuring the price they are paying is appropriate and acceptable.

In terms of social norms, Tommy X GIGI have been in collaboration for a while now, and many consumers would see an item of clothing in Tommy Hilfiger, decide they do not like it however the moment it becomes apparent to them that actually Gigi Hadid is seen in a photo wearing it, the item suddenly is lovely and a must-buy. This is a similar situation with FENTY beauty by Rihanna and many more.

So if we know the factors that tempt us to act irrationally, why do we still do it? The answer to this question is simple, because at the end of the day, we are mere humans and can act irrationally from time to time. I studied Business Management at The University of Nottingham for my undergraduate degree. I then studied for my PGCE and MA at UCL.

Definitely! Economics affects our daily lives in both obvious ways and more subtle ways. From an individual perspective, economics frames many choices we have to make about work, leisure, consumption and how much to save. Our lives are also influenced by broader economic trends, such as inflation, interest rates and economic growth. We can apply Economics to pretty much everything we do and every decision we make!

I have had several jobs before teaching, working for a company specialising in corporate recognition products, and providing social media marketing for a confectionary company. Both enabled me to earn money to put towards my passion, travelling. I have volunteered and travelled in South America, along with spending two summers as a camp counsellor in America where I was then able to travel for a month between New York and LA. I have also spent six months living and teaching in Thailand.

My favourite film would have to be ‘The Big Short’ and I think the BBC Radio 4 podcast ‘Economics with Subtitles’ is great too. Currently, my favourite Econmics book is ‘Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist’