Consumer behavior
Lecture 1 – Introduction
Preferences
Preferences = Preferences refer to the degree of liking or disliking that a consumer has for a particular product,
service, or experience. These preferences motivate the choices consumers make.
They are shaped by various factors, including personal tastes, cultural influences, past experiences, and social
dynamics. In consumer behavior, understanding preferences is crucial as it helps marketers and businesses predict
and influence purchasing decisions.
Rational Choice Theory
People make decisions to satisfy their preferences à consumers make decisions to maximize satisfaction based
on their preferences.
• Individuals make decisions by rationally considering the available options and selecting the one that
maximizes their utility or satisfaction.
• assumes that consumers have clear preferences and that they use these preferences to make choices that
will best satisfy their needs and wants.
• Rational Choice Theory suggests that consumer behavior is guided by a logical and systematic process of
decision-making aimed at maximizing personal benefit.
File drawer model
Preferences are retrieved when needed à describes how preferences are stored and retrieved when needed to
make a decision.
• preferences are not always actively in use but are stored in the "file drawer" of the mind. When a
consumer is faced with a decision, they "open the drawer" and retrieve the relevant preferences to guide
their choice.
• suggests that preferences can be dormant until needed and that they can be influenced by various factors
at the moment of decision-making, such as context, framing, and recent experiences.
1
,Low stakes – example: light bulb
When purchasing a light bulb, the decision is relatively low stakes, meaning the consequences of the decision are
minor and the decision process is typically quicker and less stressful. à Preferences for attributes like brightness
and price are quickly retrieved, and the decision is simplified to focus on these key factors.
High stakes – Example: health insurance
Choosing health insurance is a high-stakes decision with significant consequences for the consumer's financial and
physical well-being. This decision requires a more involved and careful process à Preferences for comprehensive
coverage, cost, and provider networks are carefully retrieved and evaluated, often with the aid of external
resources to ensure the best choice is made.
Attending a free poetry reading
First condition
1. Pay €2 to attend à 3%
2. Attend for free à 97 %
Second condition
1. Get paid €2 to attend à 59%
2. Attend for free à 41%
Alternative view: preference construction à “Preferences are labile, inconsistent, subject to factors we are
unaware of, and not always in our own best interests.” There is mostly no true preference
• Preferences are labile: They can change and are not stable over time.
• Preferences are inconsistent: They can vary based on different factors and conditions.
• Preferences are subject to factors we are unaware of: External influences such as framing, social context,
and incentives can shape preferences.
• Preferences are not always in our best interest: Decisions can be influenced by immediate context rather
than long-term benefits.
Context Matters
The context in which choices are presented plays a crucial role in shaping preferences à Neurons in the brain
have limited firing capacity
• The brain must adjust to the context or range of options presented
• Social influences can influence attitudes / values / preferences
2
,Theories
Theory = A system of ideas intended to explain something.
Theories help us understand why consumers make the choices they do, how they form preferences, and what
factors influence their decisions.
George Box: “All models are wrong, but some are useful.”
• while no theoretical model can capture the full complexity of reality, they can still provide valuable insights
and guidance. In the context of consumer behavior
• All theories and models of consumer behavior are simplifications. They cannot account for every variable
or predict behavior perfectly.
• Despite their imperfections, these models are useful for identifying patterns, making predictions, and
informing strategies in marketing and policy-making.
Einstein: “Everything should be made as simple as possible, but not simpler”
• There is a balance between simplicity and complexity in theory development
• Theories should distill complex phenomena into understandable and manageable concepts without
oversimplifying.
• Oversimplification can lead to misinterpretations and overlook critical factors that influence behavior.
All theories have blind spots (due to the complexity and variability of human behavior.)
What makes a theory useful?
1. Internally consistent à Doesn’t contradict itself. A useful theory must be logically coherent and free from
contradictions. This means that all propositions and conclusions within the theory align with each other
without any internal conflict.
2. Testable predictions à A theory should make clear, testable predictions that can be empirically evaluated.
This allows researchers to confirm or refute the theory based on observable data.
3. Empirically supported à Likely to be true. The theory should be supported by empirical evidence, meaning
it has been validated through experiments, observations, and real-world data.
Generality-specificity trade-off
• General: covers many phenomena and behaviors à e.g., Rational
Choice Theory applies broadly to various decision-making scenarios
but may not account for specific irrational behaviors observed in
practice.
• Specific: able to predict behavior with high precision à e.g., A
theory specifically explaining consumer behavior in online shopping
contexts might predict those behaviors well but may not apply to
in-store shopping.
Gambler’s fallacy
Treat independent events (die rolls) as non-independent, assuming it will tend toward evening out. à The belief
that future probabilities are influenced by past events, even when the events are independent.
3
, Example à If a coin lands on tails several times in a row, people might wrongly believe that heads is more likely
on the next toss, despite each toss being independent.
Understanding cognitive biases, such as the gambler's fallacy, emphasizes the need for theories to accurately
account for how people actually think and behave, reinforcing the importance of the criteria mentioned above.
Highly specific explanations
Sometimes high specific explanations are tautological (optimism bias).
Tautological explanations = one that is true by definition, but does not provide any additional information. It often
repeats the same idea in different words.
• Can be masked by “dressing things up” in different names: using complex language or different names to
make them appear more insightful than they actually are.
• Example: Saying that people buy products they like because they have a preference for them. This doesn't
explain why they have that preference or how it was formed.
High specificity can sometimes lead to overly narrow explanations that don't consider broader contexts or
underlying factors, resulting in circular reasoning.
But why? à Proximate and ultimate explanations
Ultimate and Proximate explanations
• Proximate mechanism (“how” behavior is generated) = explain the immediate causes and processes
through which behavior is generated. They focus on the physiological, psychological, and environmental
factors that influence behavior.
• Ultimate mechanism (“why” behavior is favored) = explain the evolutionary or functional reasons why
behavior has been favored or persists. They look at the long-term benefits or adaptive value of the
behavior.
4
Lecture 1 – Introduction
Preferences
Preferences = Preferences refer to the degree of liking or disliking that a consumer has for a particular product,
service, or experience. These preferences motivate the choices consumers make.
They are shaped by various factors, including personal tastes, cultural influences, past experiences, and social
dynamics. In consumer behavior, understanding preferences is crucial as it helps marketers and businesses predict
and influence purchasing decisions.
Rational Choice Theory
People make decisions to satisfy their preferences à consumers make decisions to maximize satisfaction based
on their preferences.
• Individuals make decisions by rationally considering the available options and selecting the one that
maximizes their utility or satisfaction.
• assumes that consumers have clear preferences and that they use these preferences to make choices that
will best satisfy their needs and wants.
• Rational Choice Theory suggests that consumer behavior is guided by a logical and systematic process of
decision-making aimed at maximizing personal benefit.
File drawer model
Preferences are retrieved when needed à describes how preferences are stored and retrieved when needed to
make a decision.
• preferences are not always actively in use but are stored in the "file drawer" of the mind. When a
consumer is faced with a decision, they "open the drawer" and retrieve the relevant preferences to guide
their choice.
• suggests that preferences can be dormant until needed and that they can be influenced by various factors
at the moment of decision-making, such as context, framing, and recent experiences.
1
,Low stakes – example: light bulb
When purchasing a light bulb, the decision is relatively low stakes, meaning the consequences of the decision are
minor and the decision process is typically quicker and less stressful. à Preferences for attributes like brightness
and price are quickly retrieved, and the decision is simplified to focus on these key factors.
High stakes – Example: health insurance
Choosing health insurance is a high-stakes decision with significant consequences for the consumer's financial and
physical well-being. This decision requires a more involved and careful process à Preferences for comprehensive
coverage, cost, and provider networks are carefully retrieved and evaluated, often with the aid of external
resources to ensure the best choice is made.
Attending a free poetry reading
First condition
1. Pay €2 to attend à 3%
2. Attend for free à 97 %
Second condition
1. Get paid €2 to attend à 59%
2. Attend for free à 41%
Alternative view: preference construction à “Preferences are labile, inconsistent, subject to factors we are
unaware of, and not always in our own best interests.” There is mostly no true preference
• Preferences are labile: They can change and are not stable over time.
• Preferences are inconsistent: They can vary based on different factors and conditions.
• Preferences are subject to factors we are unaware of: External influences such as framing, social context,
and incentives can shape preferences.
• Preferences are not always in our best interest: Decisions can be influenced by immediate context rather
than long-term benefits.
Context Matters
The context in which choices are presented plays a crucial role in shaping preferences à Neurons in the brain
have limited firing capacity
• The brain must adjust to the context or range of options presented
• Social influences can influence attitudes / values / preferences
2
,Theories
Theory = A system of ideas intended to explain something.
Theories help us understand why consumers make the choices they do, how they form preferences, and what
factors influence their decisions.
George Box: “All models are wrong, but some are useful.”
• while no theoretical model can capture the full complexity of reality, they can still provide valuable insights
and guidance. In the context of consumer behavior
• All theories and models of consumer behavior are simplifications. They cannot account for every variable
or predict behavior perfectly.
• Despite their imperfections, these models are useful for identifying patterns, making predictions, and
informing strategies in marketing and policy-making.
Einstein: “Everything should be made as simple as possible, but not simpler”
• There is a balance between simplicity and complexity in theory development
• Theories should distill complex phenomena into understandable and manageable concepts without
oversimplifying.
• Oversimplification can lead to misinterpretations and overlook critical factors that influence behavior.
All theories have blind spots (due to the complexity and variability of human behavior.)
What makes a theory useful?
1. Internally consistent à Doesn’t contradict itself. A useful theory must be logically coherent and free from
contradictions. This means that all propositions and conclusions within the theory align with each other
without any internal conflict.
2. Testable predictions à A theory should make clear, testable predictions that can be empirically evaluated.
This allows researchers to confirm or refute the theory based on observable data.
3. Empirically supported à Likely to be true. The theory should be supported by empirical evidence, meaning
it has been validated through experiments, observations, and real-world data.
Generality-specificity trade-off
• General: covers many phenomena and behaviors à e.g., Rational
Choice Theory applies broadly to various decision-making scenarios
but may not account for specific irrational behaviors observed in
practice.
• Specific: able to predict behavior with high precision à e.g., A
theory specifically explaining consumer behavior in online shopping
contexts might predict those behaviors well but may not apply to
in-store shopping.
Gambler’s fallacy
Treat independent events (die rolls) as non-independent, assuming it will tend toward evening out. à The belief
that future probabilities are influenced by past events, even when the events are independent.
3
, Example à If a coin lands on tails several times in a row, people might wrongly believe that heads is more likely
on the next toss, despite each toss being independent.
Understanding cognitive biases, such as the gambler's fallacy, emphasizes the need for theories to accurately
account for how people actually think and behave, reinforcing the importance of the criteria mentioned above.
Highly specific explanations
Sometimes high specific explanations are tautological (optimism bias).
Tautological explanations = one that is true by definition, but does not provide any additional information. It often
repeats the same idea in different words.
• Can be masked by “dressing things up” in different names: using complex language or different names to
make them appear more insightful than they actually are.
• Example: Saying that people buy products they like because they have a preference for them. This doesn't
explain why they have that preference or how it was formed.
High specificity can sometimes lead to overly narrow explanations that don't consider broader contexts or
underlying factors, resulting in circular reasoning.
But why? à Proximate and ultimate explanations
Ultimate and Proximate explanations
• Proximate mechanism (“how” behavior is generated) = explain the immediate causes and processes
through which behavior is generated. They focus on the physiological, psychological, and environmental
factors that influence behavior.
• Ultimate mechanism (“why” behavior is favored) = explain the evolutionary or functional reasons why
behavior has been favored or persists. They look at the long-term benefits or adaptive value of the
behavior.
4
