CONSUMER BEHAVIOR
Lecture notes Consumer behaviour – block 4 – 2024
Lecture 1 – Introduction
Preferences
A preference is a degree of liking for something, it motivates choice.
Rational choice theory:
People have well-defined preferences (relatively stable, we always have them)
They make decisions to satisfy their preferences
Preferences lead to consumer behaviour and
they consist of:
o Needs
o Goals
o Desires
File drawer model: preferences are retrieved when needed.
Example: Imagine a light bulb goes out in your house, so you need to buy a new one. You go to the
store and there are a lot of options. Different attributes you could consider include:
Environmental impact, wattage, price, longevity, ratings, promotions, budget, time, consumer
reports
Here, the stakes are low, but what about health insurance or other more consequential options?
It would be nearly impossible to integrate all attributes and then compare all options and make a
choice.
Most people simplify the choice to focus on attributes that are most relevant to them, and
constrain by options.
Example paper (Ariely et al.): attending a free poetry reading
1. Pay condition = pay 2eu to attend and than it’s free, who’s going? 35% is still going
2. Get paid condition = get paid 2eu and than it’s free, who’s going? 8% is still going
So the decision after all is the same am I going to a free poetry reading. However, when you get
paid to do it, it might seem not as interesting as when you have to pay for it. So the condition
influences the choice, although the decision is equal.
Preference reversals are common
Alternative view is preference construction (instead of one true preference)
o preferences are labile, inconsistent, subject to factors we are unaware of, and not
always in our own best interests
o the very notion of a “true” preference must, in many situations, be rejected
Context matters
,Example of how context matters: neurons in the brain have limited firing capacity, so they adjust to
the context or range. The middle grey box looks darker when the background is light, although they
are the same. 5eu compared to 500 looks like a bigger difference than 5eu compared to a few cents.
The way attributes are displayed or emphasized, the current needs or wants, social
influences can all influence how something is valued.
Theories
A theory is
A system of ideas intended to explain something
It is a model sometimes some reality has to be sacrificed to explain what you are
interested in. This also depends on the context.
All theories have blind spots. George Box: “all models are wrong but some are useful” or Einstein
“everything should be made as simple as possible, but not simpler”.
Example: Why did I buy the chocolate bar?
Because I prefer chocolate bars over fruit
Because chocolate triggers chemical reactions in my brain that I experience as pleasurable
Because in humans’ ancestral past, preferring high-caloric foods was adaptive which is why
humans evolved to seek out foods high on sugar or fat
Example 2: Friet or Patat
But what would make a theory useful?
Internally consistent (doesn’t contradict itself)
Testable predictions (it needs to make predictions that someone can measure or test, so that
we can find out whether it is true or not)
Empirically supported (likely to be true, explain existing findings to increase chances of
making a correct theory
There is a generality-specificity trade-off for theories:
General: covers many phenomena & behaviours (evolution)
Specific: able to predict behaviour with high precision (physics)
Gambler’s fallacy:
Treat independent events (die rolls) as non-independent, assuming it will tend toward
evening out.
o E.g. if tails come up in many coin tosses, expect heads to be more likely on next coin
toss.
This can be placed on relatively high specificity and lower generality.
o It covers one phenomena / behaviour (the bias we have)
o But is able to predict behaviour or the beliefs about what will happen next with high
precision
Some specificity (individual reaction to this fallacy) can be sacrificed to make it a little more
general
A cautionary note on highly specific explanation:
Sometimes they are tautological (“optimism bias”)
This can be masked by “dressing things up” in different names
They often make you think: But WHY?
o What is the proximate mechanism? The “how” behaviour is generated
o What is the ultimate mechanism? The “why” behaviour is favoured
Example: Why did I buy the chocolate bar?
, Because I prefer chocolate bars over fruit. But why? It only explains your preference in one
very specific situation, it doesn’t explain the why.
Because chocolate triggers chemical reactions that are pleasurable = proximate (how
behaviour is generated)
Because in humans’ ancestral past, preferring high-caloric foods was adaptive which is why
humans evolved to seek out foods high on sugar or fat = ultimate (why behaviour is
favoured)
, Lecture 2 – Heuristics, biases & nudging
Rational choice theory
The traditional view of rational choice history says that people:
have well-defined preferences (file drawer model)
process all information
weigh the relevant information
consistently choose what satisfies their preferences
However, people often deviate from the principles of rational choice theory. People sometimes:
Construct their preferences in the moment
Ignore or avoid relevant information
Rely on irrelevant information
Make mistakes
Example: adding a large coffee option, makes more people choose
for the medium option instead of the small coffee option.
If you have a small popcorn for 3.50, and a large for 6.50 everyone
will choose the small, however when you add a medium for 6, the
option of large of obviously better because it’s not a lot more
expensive but it is a lot bigger.
Preferences are influenced by context:
o Compromise effect: an option is chosen more often when its attributes are not at
the extremes (coffee example).
Middle option chosen more often
o Attraction/decoy effect: Option A is more strongly preferred over Option B if A
obviously dominates another option (popcorn example)
Option that dominates is chosen more often.
Heuristics & biases
Kahneman & Tversky are two psychologists who did most research on how people actually make
decisions. They integrated psychological principles into studies to research biases and heuristics.
Bias: Observing behaviour that is different from rationality (systematic deviations from
rationality)
Heuristics: mental shortcuts
Biases:
Endowment effect:
Lecture notes Consumer behaviour – block 4 – 2024
Lecture 1 – Introduction
Preferences
A preference is a degree of liking for something, it motivates choice.
Rational choice theory:
People have well-defined preferences (relatively stable, we always have them)
They make decisions to satisfy their preferences
Preferences lead to consumer behaviour and
they consist of:
o Needs
o Goals
o Desires
File drawer model: preferences are retrieved when needed.
Example: Imagine a light bulb goes out in your house, so you need to buy a new one. You go to the
store and there are a lot of options. Different attributes you could consider include:
Environmental impact, wattage, price, longevity, ratings, promotions, budget, time, consumer
reports
Here, the stakes are low, but what about health insurance or other more consequential options?
It would be nearly impossible to integrate all attributes and then compare all options and make a
choice.
Most people simplify the choice to focus on attributes that are most relevant to them, and
constrain by options.
Example paper (Ariely et al.): attending a free poetry reading
1. Pay condition = pay 2eu to attend and than it’s free, who’s going? 35% is still going
2. Get paid condition = get paid 2eu and than it’s free, who’s going? 8% is still going
So the decision after all is the same am I going to a free poetry reading. However, when you get
paid to do it, it might seem not as interesting as when you have to pay for it. So the condition
influences the choice, although the decision is equal.
Preference reversals are common
Alternative view is preference construction (instead of one true preference)
o preferences are labile, inconsistent, subject to factors we are unaware of, and not
always in our own best interests
o the very notion of a “true” preference must, in many situations, be rejected
Context matters
,Example of how context matters: neurons in the brain have limited firing capacity, so they adjust to
the context or range. The middle grey box looks darker when the background is light, although they
are the same. 5eu compared to 500 looks like a bigger difference than 5eu compared to a few cents.
The way attributes are displayed or emphasized, the current needs or wants, social
influences can all influence how something is valued.
Theories
A theory is
A system of ideas intended to explain something
It is a model sometimes some reality has to be sacrificed to explain what you are
interested in. This also depends on the context.
All theories have blind spots. George Box: “all models are wrong but some are useful” or Einstein
“everything should be made as simple as possible, but not simpler”.
Example: Why did I buy the chocolate bar?
Because I prefer chocolate bars over fruit
Because chocolate triggers chemical reactions in my brain that I experience as pleasurable
Because in humans’ ancestral past, preferring high-caloric foods was adaptive which is why
humans evolved to seek out foods high on sugar or fat
Example 2: Friet or Patat
But what would make a theory useful?
Internally consistent (doesn’t contradict itself)
Testable predictions (it needs to make predictions that someone can measure or test, so that
we can find out whether it is true or not)
Empirically supported (likely to be true, explain existing findings to increase chances of
making a correct theory
There is a generality-specificity trade-off for theories:
General: covers many phenomena & behaviours (evolution)
Specific: able to predict behaviour with high precision (physics)
Gambler’s fallacy:
Treat independent events (die rolls) as non-independent, assuming it will tend toward
evening out.
o E.g. if tails come up in many coin tosses, expect heads to be more likely on next coin
toss.
This can be placed on relatively high specificity and lower generality.
o It covers one phenomena / behaviour (the bias we have)
o But is able to predict behaviour or the beliefs about what will happen next with high
precision
Some specificity (individual reaction to this fallacy) can be sacrificed to make it a little more
general
A cautionary note on highly specific explanation:
Sometimes they are tautological (“optimism bias”)
This can be masked by “dressing things up” in different names
They often make you think: But WHY?
o What is the proximate mechanism? The “how” behaviour is generated
o What is the ultimate mechanism? The “why” behaviour is favoured
Example: Why did I buy the chocolate bar?
, Because I prefer chocolate bars over fruit. But why? It only explains your preference in one
very specific situation, it doesn’t explain the why.
Because chocolate triggers chemical reactions that are pleasurable = proximate (how
behaviour is generated)
Because in humans’ ancestral past, preferring high-caloric foods was adaptive which is why
humans evolved to seek out foods high on sugar or fat = ultimate (why behaviour is
favoured)
, Lecture 2 – Heuristics, biases & nudging
Rational choice theory
The traditional view of rational choice history says that people:
have well-defined preferences (file drawer model)
process all information
weigh the relevant information
consistently choose what satisfies their preferences
However, people often deviate from the principles of rational choice theory. People sometimes:
Construct their preferences in the moment
Ignore or avoid relevant information
Rely on irrelevant information
Make mistakes
Example: adding a large coffee option, makes more people choose
for the medium option instead of the small coffee option.
If you have a small popcorn for 3.50, and a large for 6.50 everyone
will choose the small, however when you add a medium for 6, the
option of large of obviously better because it’s not a lot more
expensive but it is a lot bigger.
Preferences are influenced by context:
o Compromise effect: an option is chosen more often when its attributes are not at
the extremes (coffee example).
Middle option chosen more often
o Attraction/decoy effect: Option A is more strongly preferred over Option B if A
obviously dominates another option (popcorn example)
Option that dominates is chosen more often.
Heuristics & biases
Kahneman & Tversky are two psychologists who did most research on how people actually make
decisions. They integrated psychological principles into studies to research biases and heuristics.
Bias: Observing behaviour that is different from rationality (systematic deviations from
rationality)
Heuristics: mental shortcuts
Biases:
Endowment effect:
