Behavioral economists examine choices that consumers make that are not economically rational. Economists generally assume that people are rational; that is, they weigh the benefits and costs of an action and decide on an action that brings more benefits. However, behavioral economists, Herbert A. Simon argues that the rationality of individuals is a subject to the information they posses, the cognitive limitations of their minds, and the available time they have to make a decision (Sexton 239). Simon also advanced two cognitive styles, satisficers and maximizers. Maximizers often take longer to make decisions because of the need to maximize performance across all variables and make tradeoffs carefully. On the other hand, satisficers recognize the fact that decision-makers do not have the ability to arrive at tare not able to reach an optimal solution, but instead apply their rationality only after having greatly simplified the available choices. This makes the decision-maker a satisficer, one seeking a satisfactory solution rather than the optimal one.
Emotions can greatly influence decision making because decisions often take place in the presence of uncertainty about the consequences of the choice. For example, somatic marker hypothesis proposes that there is an important connection between emotion, feeling, and decision. As such, a defect in emotion can result into impaired decision-making. This theory holds that emotions aid such decisions in the form of bodily states elicited during the consideration on anticipated outcomes as either being advantageous or disadvantageous (Sexton 378). Consumers often asses the value of choices available to them when making decisions, using emotional and cognitive processes. However, when faced with conflicting and complex choices, consumers may be unable to make decisions using cognitive processes, which may become overloaded and unable to help in making decisions.
Irrational behavior comes as a consequence of emotional reactions evoked when an individual is faced with complex and difficult decisions. According to a research conducted by University College London (UCL), rational behavior may arise from an ability to supersede mechanical emotional reactions, rather than lack of emotion (Sexton 231). Even though classical theories of economies assume that people act entirely rationally when making decisions, behavioral economic theorists have increasingly recognized that humans often act irrationally, as result of biased influence. For example, people are consistently and strongly affected by the manner in which a question is presented. An operation that has forty percent probability of success appears more appealing that one that has a sixty percent chance of failure.
Behavioral economists assume that people do not make intentional decisions that will make the worse off (Griffin 26). Most of them act on purpose because they make decisions with some expected outcomes in mind. Most of their decisions are rational and purposeful, not chaotic and random. In some cases, people make mistakes, which are influenced by emotion, but the point is that they make their decisions with some expected results in mind. Consumers may act irrationally even if the result makes them worse off because of the emotions and the state of the mind. In most case, they do act rationally, only that they have different definition of better and worse than another does. For example, some may value today’s comforts more than future ones. In addition, some people may prefer purchasing a red car while others may prefer to buy a black car even though some may dislike a black car. In some cases, consumers may fail to act rationally simply because they are lazy and ignorant.
Works cited
Sexton, Robert L. Exploring Macroeconomics (6th ed.). Connecticut: Cengage Learning, 2011. Print.
Griffin, Ricky W. Fundamentals of Management. Connecticut: Cengage Learning, 2010. Print.
