1.2.10 Alternative Views of Consumer Behaviour
Edexcel A-Level Economics (9EC0) | Theme 1.2.10
Specification Requirements: Students must
understand limitations of the rational consumer model, analyze
behavioral economics concepts (bounded rationality, heuristics,
choice architecture), and evaluate how firms exploit these
tendencies. Real-world applications to marketing and policy are
essential.
Challenging Rational Choice Theory
Traditional Assumptions
- Perfect information access
- Utility maximization
- Cost-benefit analysis
- Consistent preferences
Behavioral Critique
- Bounded rationality: Cognitive limits in processing
- Bounded willpower: Short-term impulses dominate
- Bounded self-interest: Social influences matter
Nurofen vs Generic Ibuprofen: Despite identical
active ingredients, Nurofen commands 60% price premium due to
branding (UK CMA 2023 study).
Key Behavioral Concepts
1. Social Influences
- Herd behavior: Following crowd choices (e.g., TikTok trends)
- Veblen effects: Conspicuous consumption (luxury goods)
- Endorsement power: 72%↑ conversion with influencer marketing
Diagram Note: Demand curve shift right for
"trending" products with social proof indicators.
2. Cognitive Biases
- Anchoring: Initial price perceptions stick (e.g., "was £99 now £49")
- Loss aversion: 2x more painful to lose than gain (prospect theory)
- Default bias: 80% stick with pre-selected options
3. Heuristics
- Rule of thumb: "Buy the mid-priced option"
- Availability heuristic: Overweight recent/visible info
- Choice overload: 30%↓ sales with 50+ SKUs (jam study)
Evaluation Tip: When critiquing rational
models, distinguish between:
- System 1: Fast, intuitive thinking (behavioral)
- System 2: Slow, logical thinking (traditional)
Firm Exploitation Strategies
| Technique | Behavioral Principle | 2024 Example |
|---|---|---|
| Decoy Pricing | Anchoring & relativity | Streaming plans: Basic (£5), Standard (£10), Premium (£11) |
| Scarcity Tactics | Loss aversion | "Only 3 left!" increases conversions by 47% |
| Salient Pricing | Attention bias | Eye-level supermarket positioning = 35% more sales |
| Reciprocity | Social norms | Free samples increase purchase likelihood by 68% |
Neurobranding: Coca-Cola's "Share a Coke"
campaign exploited name recognition bias, boosting sales 11%
through personalized bottles.
Policy Implications
Nudges
- UK pension auto-enrollment (opt-out vs opt-in)
- Traffic light food labeling
- Default green energy tariffs
Regulation
- EU ban on "dark patterns" in online shopping
- UK gambling ad restrictions (9pm watershed)
- California's "hidden fees" law (2024)
Diagram Note: Dual-axis graph showing:
- X-axis: Intervention intensity (nudge → regulation)
- Y-axis: Effectiveness for different biases
- Plot points for various policies
Exam Preparation Toolkit
Recent Exam Questions:
- "Evaluate the view that behavioral economics explains consumer choices better than traditional rational models" (Edexcel 2023, 25 marks)
- "Analyse how firms use knowledge of consumer psychology to increase sales" (Edexcel 2022, 15 marks)
- "Discuss the effectiveness of 'nudge' policies in correcting market failures" (Edexcel 2021, 20 marks)
Advanced Evaluation Points
| Perspective | Support | Counter |
|---|---|---|
| Predictive Power | Explains real market anomalies (premium brands, bubbles) | Less mathematically precise than rational models |
| Policy Design | Nudges preserve freedom of choice | Risk of paternalism ("nanny state") |
| Cultural Variation | Universal biases (loss aversion) | Some heuristics culture-specific (e.g., price perceptions) |
Examiner's Report 2023: Top scripts referenced:
- Amazon's "Frequently bought together" (default bias)
- UK sugar tax vs Chile's front-of-pack warnings (nudge effectiveness)
- GameStop short squeeze (herd behavior in financial markets)