Objective: Supporting effective consumer decision making.
Consumer spending and decision-making are major drivers of the economy. How consumers choose to spend and invest their money to derive utility has wide-ranging implications – for quality of life, happiness even determining which industries thrive or fail.
Within microeconomic theory, consumers attempt to maximise utility or happiness within their constrained budget. The decisions that consumers make – acting as rational agents – are in turn impacted by an extensive set of preferences which may include prices, colour, quality, accessibility, comfort and any number of other subjective factors.
Neoclassical microeconomics and Rational Choice Theory rely on two fundamental principles which underpin consumer decision-making:
- Perfect information – that consumers acting as economic agents have access to perfect information about alternatives in order to make informed decisions.
- Complete preferences – meaning that consumer preferences are stable over time and that consumers can rank every possible pair of choices in a set of alternatives.
These principles have attracted significant attention in recent times from psychologists and behavioural economists, largely due to the limited extent to which they reflect the reality of human of behaviour and cognitive abilities. The concept of Bounded Rationality was perhaps the first attempt to acknowledge the cognitive limitations of people acting as economic 12 agents and the fact that cognitive processing is not an unlimited resource. From here the fields of Behavioural Decision Making and Behavioural Economics have attempted to offer alternative models which are more reflective of the reality of human decision-making processes. Such alternatives acknowledge cognitive limitations, but also demonstrate how environmental and other factors play often a significant role in the decision-making process.
CPRC will focus research on initiatives which better support consumer decision-making processes through:
- Improvement of information disclosure to enable fair comparison of products and services;
- Effective consumer and community engagement strategies to support market engagement (focus on disengaged and vulnerable consumers);
- Investigating and trialing behavioural interventions (such as nudges – both positive and negative) to evaluative the potential societal benefits or harm for consumers.
See our first report: The Five Preconditions of Effective Consumer Engagement.