David has taught computer applications, computer fundamentals, computer networking, and marketing at the college level. He has a MBA in marketing.
What Is Rational Choice Theory?
In a perfect world, humans would always make prudent decisions that would yield the most possible benefits. All options would be carefully considered, and the choice that provides the most satisfaction and advances our self-interest would be chosen. This is the premise of rational choice theory, which is widely discussed in economics and marketing and states that people tend to make decisions that maximize benefits while minimizing risks. So this sounds pretty logical, right? Here's where it gets a little fuzzy - a rational decision can also be justified not just by monetary gain, but also by the level of emotional satisfaction it delivers. A balancing act between the heart and brain in the decision-making process is possible.
Rational choice theory also states that consumers should behave in a consistent, predictable manner and exhibit control over their behavior, but we know that doesn't always happen. A good example is when snack food companies put snacks in large containers and people eat more even when they know they shouldn't. A more vivid description of a food item makes it more emotionally appealing than a generic description of the same food. We assume a crowded restaurant is good because of the crowd, and an empty restaurant must not be as good.
Imprinting & Availability Bias
There's also a phenomenon called imprinting, which says the first price we hear for an item, or the first brand of an item we try, becomes our ''anchor,'' and all others are compared to it. A similar theory to this is availability bias, which states that we tend to refer to the most recent example or one that comes to mind easily when making a decision. This bias shows itself in cases like investors changing their investment strategy based on a temporary, well-publicized downturn instead of sticking to a proven long-term plan.
So how does a company get us to behave irrationally and abandon our ''anchor'' item or move away from the lowest price? Look at Starbucks as an example: they changed the experience of buying coffee by addressing the ambiance, the gourmet snack items, and the baristas. By changing the experience, they moved the focus away from the price. There are certainly less expensive alternatives for coffee, but can you sit in the competitors' shops and use their internet access for free like you can at Starbucks?
The Zero Price Effect
Another way marketers get your attention is through the zero price effect, which says that when someone offers something free in conjunction with something else, it skews our analysis. How many times have you heard a commercial like ''buy a Kia this weekend and get a free flat panel TV''? The free TV just might be the pull that gets you into the Kia showroom.
The advent of the information age - the ability to easily research multiple options for a product purchase through the internet - can also lead us to distraction in the decision-making process. A common one is the ''fear of better options,'' which can sometimes lead us away from the important criteria when we notice something flashy during our search. Marketers can highlight a need that we didn't initially realize we had and move us to action on that need versus our original targeted one. There's also something called the paradox of choice which can be a factor. This theory is that having too many choices can lead to consumer anxiety.
Rational choice theory states that people tend to make decisions that maximize benefits while minimizing risks; but consumers don't always behave rationally - sometimes they behave very irrationally, acting more on impulse. Sometimes influencing factors like availability bias - which involves using the most recently acquired info because it's the easiest for our brain to access - or imprinting - which involves using an anchor item for comparison - enter into the equation. There's also the zero price effect, which says when we're offered something free, it can skew our analysis; and too many choices can confuse and frustrate us and make us anxious, which is known as the paradox of choice.
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