Behavioral Economics and Consumption


Copenhagen Business School, Denmark


Harvard University, USA

DOI: 10.1002/9781118989463.wbeccs255

The standard economic model of consumer behavior is simple: rational “econs” (Thaler and Sunstein 2008) choose the best things they can afford within their budget constraints. The mathematical model is essentially a constrained optimization situation for a set of considered consumption bundles, the evoked set. This model accounts for factors that influence choices, primarily time (current availability), other goods (opportunity costs), and consumption circumstances (perhaps including diminishing marginal utility). The model assumes that attitudes, values, social norms, and other mental representations are included in a consumer's preferences. While the model recognizes distinctive features or potential anomalies of consumption – such as bandwagon or cascade effects, Veblen effects, habits, addiction, limited information processing – it assumes that the biases and heuristic strategies that have been identified in empirical consumer research are generally unimportant in real-world markets. This assumption is supported by a further set of assumptions about economic agents: that they are motivated (solely) by expected utility maximization, are generally governed by purely selfish concerns, and have consistent time preferences and fungible income and assets. Later versions of the standard model have relaxed some of these ...

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