Factors Affecting Rational Choice Most consumer behavior analyses and programs seek to dig out consumers’ needs and wants, which direct their purchasing and decision behaviors. Consumer behavior and choice are complex, inherently dynamic and potentially affected by a number of factors. According to this, it seems that the rational choice theory should make some adjustments to be adopted to this increasingly more dynamic reality and marketing environment and thus set a realistic and stable base for consumer behavior analysis. . Brief introduction about rational choice theory 1. 1 Rational choice theory as an economic notion “Rationality” can also be substituted by other technical terms, such as utility, probability, product, optimization, equilibrium (Steven M. Shugan, 2006). The most common form of rational choice theory is similar with the notion of “Economic Man Model ”, which serves as the foundation for what has been termed the law-and-economics movement(Jacob Jacoby, 2000),but involves a plenty of unrealistic assumptions.
The mainstream theory of rational choice simply defines “rationality” as a situation that an individual using all possible resource and information to make complex trade-off between cost and benefits in order to maximize and optimize their action results. When this theory is applied to consumer behavior, the result turns out to be that all consumers are supposed to be rational and are able to make full use of all available resource and information to maximize their consumption utility. This model has been repeatedly challenged, both for its assumptions and conclusions.
An interesting saying is that if consumers really follow the rigorous rational decision-making steps when they go shopping, their entire life would be eventually spent on choosing and selecting and leave no time for enjoying the utilities of what they decide to purchase. 1. 2 The principle of bounded rationality Complete rationality requires consumers to possess boundless cognitive capabilities. Individuals are emotional sometimes even impulsive. Obviously, rational choice is an unrealistic concept and need to be amended to some extent. Researchers demanded a more practical and simple everyday terms for heir theories, both to better communicate the intended concept, to look out consumers purchase models and assumptions appear more palatable (Steven M. Shugan, 2006). Herbert Simon proposed bounded rational theory as an alternative of former rational theory. It is more realistic and more suitable for individual decision research analysis. Hebert Siomon (1956, cited in Gigerenzer, 2001:4) proposed a theory of ‘boundary rationality’, he also compare the notion of “boundary rationality” to a pair of scissors. One blade of them is human beings’ cognitive limitations and the other is ‘structure of environment’.
Both two blade are necessary for composing an entire decision making process. Ordinary consumers possess a certain amount of knowledge and limited cognitive capability. While, actually, individual’s information system and cognitive ability is not stable and varies among different person. In addition, outside elements frequently drive consumers somewhere besides the rational choice path. 2. Factors affecting rationality Consumer decision-making process is an outcome of complex interplay between a range of factors and is bounded both by individual’s cognitive capability boundary and structure of outside environment.
Because the people’s rationality is complicated and affected by dynamic elements, it is difficult to gain an overview of them all. Instead, only a few significant and selective factors will be discussed with the objective to understanding consumers’ limited rationality and its influencing factors. 2. 1 cognitive capability limitations a) Purchase objectives and expectations The primary element affects individual’s decision making process would be consumption goals or objectives.
Osselaer et al (2005) classified purchase goals into three categories in terms of the satisfying states people intend to achieve through purchasing behaviors and process. These three types of aim are consumption goals, which focus on the benefits offered by products and service instead of their attribute; criterion goals, which mean the level of optimization is always the only criterion of suitable choice; and process goals that treat the choosing and consuming process itself as an end. For instance, consumers sometimes would like to expend least time and fforts for shopping and take the products satisfying their basic needs just because they try to avoid the negative emotions emerge from the purchasing process. That is to say, people with different purchase goals may be lead to different behavior models and utility optimization can seldom be achieved according to this. b) Psychological factors Without psychological elements like emotions, attitudes and perceptions human are incomplete. Rational choice theory ignores this natural principle. Individual behaves by the perception of the situation. Even twin brothers would have different lifestyles and values.
In modern society, people are exposed to various kinds of stimuli. Seeing advertisements, surfing the internet and even reading newspapers can cause individuals to act in a totally different way as their expectation and habits. Sometimes, stimuli can be misleading; people’s decision will be far away from rational. That is the reason why overconsumption and hedonism exist. When consumers make buying decisions about the selection, consumption and disposal, they are always required to be confronted with a difficult emotional trade-off, such as price versus quality and short-term versus long-term (Luce, 2001).
People who want to build up a prestige for themselves always willingly sacrifice a huge amount of fortune for a product with outstanding feature. This is obviously can be counted as an action of economical man, and lack of rationality. People’s emotional nature drives them to run counter to the optimal choice. c) Historical and pervious choice It has been widely observed that consumers’ purchase behaviors are occasionally predominated by pervious consumption experience and purchase habits. Habitual decision-making situations often occur when consumers are choosing familiar products and brands.
At that time, little conscious efforts are needed. Researchers refer this routine behavioral model as automaticity (Solomon, 2010). Individuals make purchasing decisions with minimal efforts and time and regardless of their conscious control, sometimes this habitual consumption is efficient, sometime it can cause consumers to be stuck with a certain products and overlook other better solutions to their problem. Repetitive and habitual behaviors also mean a high switching cost. Giving up a habit could cause negative emotions and resistance against a better choice. Smoking as a habitual behavior can best explain this principle.
According to rationality theory, people who smoke should give up this unhealthy habit and stop purchasing smokes so as to access a higher utility level. However, only limited numbers of smokers are willing to follow the instructions of their rationality. Habit surpasses rationality sometimes. 2. 2 External factors a) Buying situation Buying situation is a repeatedly mentioned notion in consumers’ decision making process. People in different situations tend to have different behavior models. In terms of different involvement level and different decision participant number, purchase situation can be divided into three types.
Routine problem solving, limited problem solving and extensive problem solving. Cost, risk and involvement level of these situation decrease orderly. Shopping for daily grocery and food can be regarded as a routine consuming situation. Under this circumstance, seldom people would like to spare mass time and efforts to make complex comparisons of quality and prices between different supermarkets and groceries just in order to obtain the so called rational optimum. Another extreme situation appears when customers are dealing with an unfamiliar product and market field or choosing products which are comparatively highly priced.
Such situations can provoke consumers’ high involvement in decision and will eventually lead to a rational outcome. Relatively speaking, to some extent, rational choice is achieved. It is worth underlining here that people facing high perceived risk and highly involving in decision making process are likely to concern more about information collection in order to reduce uncertainty and to optimize rational choice outcome. However, searching for information sometimes means an opportunity cost. Thus, consumers imperceptibly spend more time and energy than normal level.
Besides, not all information sources are dependable and reliable. Especially those come from the producers, like advertisements. They are incomplete and biased and often become the pathway for producers to manipulate consumers. b) Price level Most consumers are sensitive to price changes. Past price, current price, and future price expectations all demonstrate influence on their product perceptions, and consequently have huge impact on decision making course. An explicit example is that people appear to base their later price judgments on the initial price impression in their minds.
Simonson and Tversky (1992) found an interesting example to explain that individual’s rational choices are subjected to price influence. Their experiment subjects who observed price appeared in descending order tended to consume more than those who saw a price list from the highest to the lowest order. Most consumers own reference price for each product category. This reference market always works as a benchmark to show strong influence on their perceived value. It is very common to recall that numerously and frequently increasing price in small amount is more acceptable than raising large amount of price even just once.
Although the total increased amounts are the same. c) Cultural and religious factors Culture is a mixture of rituals, traditions, meanings and social norms among society members. Cross-cultural experiments have demonstrated plenty evidence which strongly supported that cultural divergence could substantially affect consumers’ behavior. Cultural context could be metaphorized as a ‘prism’ thought which consumers perceive value of products and their own and other people’s purchase behaviors (Solomon, 2010). However, culture factors are constantly ignored by individuals.
This phenomenon can be described as a fish immersed in water (Solomon, 2010:507)-we even cannot realize the existence of culture power until we really encountered with some specific situations. Thus, culture acts as a potential influential and intense element for decision making process may lead consumers’ behaviors towards a ‘disordered’ way. Take boycotting foreign products for example. It is quite common to see that consumers regard imports from oversea countries as a threat to their domestic markets, in particular those much lower priced.
Historical conflicts can also be a reason for refusing and boycotting a particular product. Vegetarians reject to feed on flesh and give up gaining utilities from flesh-food, just because they believe in vegetarianism social norms and willing to sacrifice consumption utility for the norms. d) Other individuals’ activities Everyone belongs to a reference group, which refers to imaginary or actual individual or group having huge relevance upon people’s decision making behaviors (Park and Lessing, 1977, cited in Solomon, 2010:384).
Researchers define this influence into two types. The first type is normative influence-that is, other members in the reference group help to build up and enforce basic standards of conducts, like parents may act as important roles in children’s value forming and decision-making process. In contrast, the other influence type is called comparative influence. This kind of influence is common to seen when consumers would like to spend more money to buy a particular product that makes they looks like the type of person that advertisement shows.
Interactions between individuals can be positive or negative for consumption behaviors. Word of mouth is a powerful tool for information dispersion. It can either be a useful information source or a detrimental factor which could disturb consumers’ rationalities. It is common to notice that, consumers’ motivations to keep distance from negative influence always stronger than the desire to acceptance positive reference groups. 3. Implications for consumer behavior analysis
Considering consumer behavior analysis, researchers should be aware of that consumers’ information-processing and decision-making process must be supplemented by dynamic side of personality. In other words, if researchers want to dig out the real and realistic rationale behind individual’s purchase decisions, two questions must be answered: how do consumers handle the information process that leads to their purchases and what reasons lay behind this processing. Some augments suggest that when choices are made under random, individuals’ behavior patterns are erratic and unpredictable, and thus proper analysis seems impossible.
However, the fact is that consumer behavior science should accept the random attribute of human nature, but should also pay attention to another attribute-people’s behavior always in consistency with their objectives. In practical consumer behavior field, the steps undertaken to solving problems can be seen as rational as long as they are consistent with the purchase objectives. Lembin et al (2007:76) concluded that the underlying assumptions of this theory into three points: Consumers make choice according to perceived risk level; choices rely on long-term anticipation of future date; opportunity cost and rinciple of generalized scarcity guide human acts. In other words, rational choice for consumer behavior analysis should not exclude impulsive behavior and the existence of a better solution. Researches in this field should focus on two main trends: because of the emergence of new technologies and advanced facilities, consumers have better control of their cognitive capabilities and become more rational; the market environment turns out to be increasingly more dynamic and compounded which bounds consumer rationality. 4. Conclusion Bounded rational choice theory is never an opposition of rational choice theory.
It plays a supplementary role in consumer decision making process and helps consumer behavior researcher better understand the individual purchase decisions in a more practical and realistic situation. To convert complete rationality assumption into limited rationality needs considerations about both individuals’ cognitive ability boundedness and environment factors. To explain consumer behavior pattern, more researches in this field are still needed. Reference 1. Asch,D. and Wolfe,B. (2001). New economy – new competition: the rise of the consumer? Basingstoke: Palgrave. 2. Bankston, C.
L. III. (Jun. , 2002). Rationality, Choice and the Religious Economy: The Problem of Belief. Review of Religious Research, Vol. 43, No. 4 p. 311-325. 3. Chaves, M. and Montgomery, J. D. (Jun. , 1996). Rationality and the Framing of Religious Choices. Journal for the Scientific Study of Religion, Vol. 35, No. 2 p. 128-144. 4. Chaves, M. and Montgomery, J. D. (Jun. , 1996). Rationality and the Framing of Religious Choices. Journal for the Scientific Study of Religion, Vol. 35, No. 2 p. 128-144. 5. Evans, M. J. , Moutinho, L. , W. Fred van Raaij. (1996). Applied consumer behavior.
Wokingham: Addison-Wesley Pub. Co. , 1996. 6. Friedman, M. (1966), Essays in Positive Economics. Chicago; London: University of Chicago Press. 7. Gigerenzer G. and Selten, R. (2001). Bounded rationality: the adaptive toolbox Cambridge, Mass. ; London: MIT Press. 8. Isabelle Szmigin. (2003). Understanding the consumer. London: Sage Publications. 9. Jacoby, J. , (2000). Is it Rational to Assume Consumer Rationality? Some Consumer Psychological Perspectives on Rational Choice Theory. Law and Business Research Paper No. 00-09 10. Luce, M. F. , Bettman, J. R. , and Payne, J.
W. (2001). Emotional decisions: tradeoff difficulty and coping in consumer choice. Chicago; London: University of Chicago Press. 11. Leclerc, F. , and Schmitt, H. and Dube, L. (Jul. , 1991). Waiting Time and Decision Making: Is Time like Money? Strategic Management Journal, Vol. 12, No. 5 p. 395-402. 12. Lambin, J. (2007). Market-driven management: strategic and operational marketing. Basingstoke: Palgrave Macmillan. 13. Meyer, R. , Erdem,T. , Feinberg, T. , Gilboa,I. , Hutchinson,I. , Krishna,A. , Lippman,A. , Mela,C. , Pazgal,A. , Prelec,D. , and Steckel,J. (Jul. , 1997).
Dynamic Influences on Individual Choice Behavior. Marketing Letters, Vol. 8, No. 3 p. 349-360. 14. Siomn. H. A. (1957). Models of man, social and rational: mathematical essays on rational human behaviour in a social setting. Chichester: Wiley. 15. Solomon, M. , Bamossy, G. , Askegaard, S. , and Hogg, M. K. (2001). Consumer behavior: a European perspective. Harlow: Financial Times Prentice Hall. 16. Sandhusen, R. L. (2008). Marketing. Hauppauge, N. Y. : Barron’s Educational Series. 17. Simon, Herbert A. (Herbert Alexander). (1982). Models of bounded rationality Cambridge, Mass. MIT Press. 18. Simonson, I and Tversky, A. (Aug. , 1992). Choice in Context: Tradeoff Contrast and Extremeness Aversion. Journal of Marketing Research, Vol. 29, No. 3, p. 281-295 19. Osselaer V. , Margatet C. , Joed B. Cohen,Jeannrtte K. Dale, Paul M. Herr, Chris Janiszewski, Arie W. Kreglanski, Angela Y. Lee, Stephen J. Read, J. Edward Russo and Nader T. Tavassoli. (2005). Choice Based on Goals. Marketing Letters 16:3/4, 335–346. 20. Shugan. M. S. (Jan. – Feb. , 2006). Editorial: Are Consumers Rational? Experimental Evidence? Marketing Science. Vol. 25, No. 1 p. 1-7.