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Behavioural economics, consumer behaviour and consumer policy: state of the art

Published online by Cambridge University Press:  06 October 2017

LUCIA A. REISCH*
Affiliation:
Copenhagen Business School, Porcelaenshaven 18a, DK-2000 Frederiksberg, Denmark
MIN ZHAO
Affiliation:
Carroll School of Management, Boston College, 140 Commonwealth Avenue, Chestnut Hill, MA 02467, USA
*Corresponding
*Correspondence to: Copenhagen Business School, Porcelaenshaven 18a, DK-2000 Frederiksberg, Denmark. Email: lre.msc@cbs.dk

Abstract

Counter to the traditional assumption of neoclassical economics that individuals are rational Homo oeconomici that always seek to maximize their utility and follow their ‘true’ preferences, research in behavioural economics has demonstrated that people's judgements and decisions are often subject to systematic biases and heuristics, and are strongly dependent on the context of the decision. In this article, we briefly review the transition of research from neoclassical economics to behavioural economics, and discuss how the latter has influenced research in consumer behaviour and consumer policy. In particular, we discuss the impacts of key principles such as status quo bias, the endowment effect, mental accounting and the sunk-cost effect, other heuristics and biases related to availability, salience, the anchoring effect and simplicity rules, as well as the effects of other supposedly irrelevant factors such as music, temperature and physical markers on consumers’ decisions. These principles not only add significantly to research on consumer behaviour – they also offer readily available practical implications for consumer policy to nudge behaviour in beneficial directions in consumption domains including financial decision making, product choice, healthy eating and sustainable consumption.

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Copyright
Copyright © Cambridge University Press 2017 

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