Economics Why Do Consumers Make Irrational, Decisions?

In economics there is usually the underlying assumption that people who make choices will act in a rational manner, weighing up the costs and the benefits and determining a course of action dependent which choice provides them with the greatest benefit. The assumption may appeal to logic, and is seen in rational choice theory, but the reality is many consumers will not act in a rational manner, making choices that result disadvantages or costs rather than benefits. There are a number of influences which may explain how and why consumers do not always make the rational or optimal choices in economic terms.

One of the key aspects of rational choice theory, which dictates individuals will make rational choices are the underlying assumption that individuals making the choices will be in possession of perfect information regarding the choices and the potential outcomes, and that the decision maker will have the cognitive ability to make the rational choice. It is these underlying assumptions which...

This is often over looked, but it is fairly common in the consumer markets, as it is very difficult to get full or perfect information about any decision and all the outcomes. One of the reasons firm will spend a great deal of money on branding it so increase the perception of brand knowledge and reduce the potential for consumers to look at competing products; this action reduces the search for accurate information and a choice is made based on asymmetric data. For example, if food manufacturer markets a product under a brand name, and also packages the same product under a private label, it is likely they will restrict the knowledge, and consumers will buy the more expensive branded packaging believing it to be better.
Bounded rationality can also be considered in the context of irrational decision making. The idea is…