The Myth of Rationality in Consumer Behavior

I may not choose a zero-sugar ice cream versus my favorite indulgent brand even when wanting to lose weight!

Behavioral science explains that human behavior is “irrational”: given to biases like loss aversion (the tendency to prefer avoiding losses over acquiring equivalent gains) or the anchoring effect (initial information disproportionately influence subsequent judgments) and other many biases which deviate consumer choices from rational expectations.

For example, in the ice cream case, I may have been lured by the indulgent imagery of the other brand; put a premium on immediate sensorial pleasure vs. long term benefits of eating healthier.  Put like that-the behavior indeed sounds irrational!

So, Is All Consumer Behavior ‘Irrational’?

Mahmoud Yousef Askari and Ghaleb A El-Refae, professors in College of Business, AlA in University, UAE proposed a new perspective on utility and decision-making. Through thought experiments with hypothetical examples of decision-making, they found that all individual decisions are rational and aimed at maximizing perceived utility, even if they appear irrational from traditional view of utility.  The research suggests that individuals consider both tangible and intangible factors while making decisions to meet their perceived utility.

For instance, a middle-class consumer’s decision to buy high-end coffee from a trendy cafe may be explained by behavioral science as scarcity bias (the consumer sees many people lining up at the cafe and thinks the product is premium, with limited availability).

However, this decision could be entirely driven by the consumer’s context: maybe the cafe is a popular networking spot or offers a quiet and comfortable place to work away from office, or the consumer may have had a tough week and views the purchase as a small personal reward, all of which the consumer values more than the price of the coffee.

<< Utility = Economic Value + Emotional + Socio-cultural considerations>>

Going back to my decision to indulge with a full sugar ice cream: consumption for impulse products like ice creams have a high situational context. Weight loss may be one of my long-term goals; but what I was trying to maximize in that moment of consumption may be different?

Thus, the decisions that seem irrational to outsiders often make sense when considering the buyer's own perspective on utility and personal satisfaction in the moment of consumption.

Essentially, people’s choices can appear irrational to others because they are judged through the evaluator's own standards of rationality and utility.

As ethnographers and market researchers, the only golden rule is – lack of judgement. We are not looking to label consumer behavior as rational or irrational - but rather we want to observe and understand behavior from the person’s worldview. True understanding can only come when we listen without judgement, when we listen and observe context and bring a complete ‘human’ perspective vs thinking of people as ‘purchasers of X or perpetrators of Y behavior’.

For example, at Elevate Insights, in a study on shopping behavior of the lower middle class of consumers, across channels; we could see that for most consumers ‘home delivery was seen either a luxury or non-essential’ and ‘online shopping’ was considered ‘lazy’ in many ways. In the full context of their lives, where budget management was an art and every rupee saved counted immensely, the weekly or monthly trek to a wholesale market, was seen as a form of duty to the family. 

It had become a routine which many didn’t question. Efficiency and utility notions placed value on physically checking the products and buying in just the right quantity as things finished.  Contrast this to value of time and utility in not having to physically step out, say for busy working professionals and one can see how context changes the definition of utility.

The Magic of ‘Humanizing’

Our proprietary toolkit ‘HUMAN’ acknowledges that humans are a product of their socio-cultural environment. Most of our actions are ‘System 1’ and the motivations may not be apparent to the individuals, themselves. 

With our Cognitive Interview toolkit, we Zoom-out to their life context and then Zoom-in to relevant behavior – allowing us to go beyond the superficial responses to unravel the deeper motivations and anxieties behind decision making.

For example, in another study amongst Gutka (tobacco) chewers we found that most chewers considered chewing tobacco to be a much lesser evil than smoking which typically has higher social sanction. They also used their close-group context and cultural identity to justify their choices. 

Even to nudge them towards cessation, we need to fully understand their context without judgment. For example, we could see that spouses or kids could be the key motivators to adopt cessation practices. This complete ‘human understanding’ around belief system provides insights to ‘budge’ behavior. So lets not label, but focus on understanding the full human context!

HUMAN = NEEDS + DESIRES + LIVE IN A SOCIO-CULTURAL CONTEXT + SITUATIONAL CONTEXT and utility for humans is not unidimensional.