The Myth of the Perfect Consumer | IB Economics Bounded Self-Control (HL)

When Consumers Aren’t So Rational: The Psychology Behind the Purchase

Let’s face it - most of us like to think we’re clever shoppers. But the truth says, we’re often influenced by all sorts of little mental shortcuts and quirks, known as biases. Behavioural economists have identified these as the cracks in the classical economic theory that assumes we’re all perfectly logical.

Heuristics: The Lazy Genius Within Us

One of the most common? Heuristics, or as my economics teacher at university ages ago might call it, “rule of thumb.” It’s how we speed up decisions when we’re hungry, tired, or just can't be bothered. Ever gone to Nando’s and ordered the exact same thing for the fifth time in a row because you know it’s safe? That’s heuristics in action. Our brains take a shortcut, based on experience, rather than weighing up every possible option. It’s efficient, but not always optimal.

Anchoring: First Impressions Stick

Then there’s anchoring - our tendency to rely too heavily on the first piece of information we’re given. Take Apple, for instance. They release a new iPhone with a starting price of £1,200. Suddenly, the £900 version feels like a bargain. Spoiler alert: it’s not. You’ve just been anchored.

Framing: Same Story, Different Spin

Framing is another classic bias. If a packet of mince is labelled “90% lean” rather than “10% fat,” people are far more likely to buy it - even though it’s exactly the same product. Supermarkets love this one, and it’s a key weapon in their marketing arsenal.

Availability Bias: Blame the News

Ever met someone who won £10,000 on a scratch card and suddenly thought, “Hmm, maybe I should play too”? That’s the availability bias - we judge how likely something is based on how easily we can recall examples of it. Thanks to news stories and Instagram reels, lottery winners seem to be a lot more common than they really are.

The Limits of Rationality: When Logic Hits a Wall

Even when we try our best to be rational, we're up against several limits. Nobel Prize-winning economist Herbert Simon called this bounded rationality. Our decisions are restricted by time, information, and mental capacity.

IKEA’s Secret Weapon: Simplify Everything

IKEA (yes! Still believe it or not the 7th most valuable retail brand in the world, valued at around 22 billion U.S. dollars in 2024) understands this better than most. Walk through one of their stores and you’ll notice how few words are used to describe their products. “Chair. Stackable. £29.” They know too much information overwhelms us. So, they limit the choices, streamline the info, and make decision-making easy.

Bounded Self-Control: One More Slice

Even when we know what’s best for us, we don’t always act on it. That’s bounded self-control. You might plan to save money this month, eat healthily, or finally start revising for your exams… but that Friday night takeaway always wins. And you’re not alone - this is why companies that sell instant gratification (looking at you, Deliveroo, Just Eat and TikTok) do so well.

Bounded Selfishness: Sometimes We’re Actually Nice

Contrary to the old assumption that people only act in their own self-interest, behavioural economics also considers bounded selfishness. People volunteer. People donate organs. People fundraise for charities they have no personal connection to. Even in markets, firms like Patagonia and TOMS Shoes succeed not just by selling stuff, but by selling values.

Choice Architecture: Building Better Decisions

Enter the architects - not the ones designing buildings, but those designing decisions.

Choice architecture, a concept introduced by Richard Thaler and Cass Sunstein, is all about structuring how choices are presented. Do it right, and you can nudge people into making better decisions - without taking away their freedom.

Default Options: The Lazy Power of Doing Nothing

You’ve probably noticed how Netflix automatically renews your subscription. That’s a default option. Most of us are too lazy or too distracted to change the settings, so whatever’s set as the default tends to stick. In economics, this simple trick can shape entire industries - from organ donation rates (opt-in vs. opt-out systems) to retirement savings plans.

Restricted Choices: Less is More?

Sometimes, choice architects deliberately limit our options. Take the sugar tax introduced in several countries. By making sugary drinks more expensive, governments try to steer consumers toward healthier alternatives. It’s a classic example of a nudge - no one’s banning cola, but you’re being gently encouraged to pick water or a healthy, cheaper alternative instead.

Mandated Choices: No Skipping This Bit

In other situations, you must decide - usually enforced by law. For example, in some countries, you must state whether you want to be an organ donor when you renew your driving licence. These are called mandated choices. The idea is to prompt a deliberate decision where probably you would have taken no decision.

Nudge Theory: The Gentle Push

Nudge theory is like economic Jedi mind-trickery - persuasion without pressure.

The goal is to encourage better decisions, not force them. A nudge might be placing fruit at eye level in a school canteen or automatically enrolling employees into a pension scheme (while still giving them the choice to opt out).

Thaler summed it up best:

“A nudge must be easy and cheap to avoid. If it isn’t, it’s not a nudge.”

Governments, businesses, and even schools use nudges to improve outcomes. They work because we’re not as rational as we like to think.

So, What’s the Point of All This?

Understanding how consumers really behave - not just how we think they behave - helps economists design better policies, and businesses market more effectively. More importantly, it helps you become a smarter decision-maker.

So next time you’re scrolling Netflix, ordering pizza, or choosing a savings account, ask yourself:

Am I really choosing freely - or have I been nudged?

Something to chew on.

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