Consumer Products and Consumer Behavior

Abstract

This chapter argues that in many markets, consumers face a choice problem in which the marginal cost of obtaining additional information necessary to improve a purchase decision exceeds the marginal benefit of the improved decision. For example, in the United States there are over five-hundred different brands and variations on brands of breakfast cereal. It is likely that no consumer makes the best possible purchase decision, save by accident, because the cost of obtaining full information about the competing brands far exceeds the benefit of employing the information in decision-making. In this situation, the consumer knows that the best he can hope for is a satisfactory purchase decision as opposed to the optimal purchase decision. This problem is not restricted to low-price products. The number of brands of cars, combined with the number of options available for each brand of car, and the fact that many brand attributes (e.g., mileage, handling, reliability) can only be imperfectly measured without first-hand experience, means that automobile consumers also face the problem of limited information and are aware that they face limited information. As with breakfast cereals, most automobile consumers are aware that their purchase decision will not be the optimal decision but (they hope) will be satisfactory. The lack of information presents a risk to the consumer. Because the consumer is aware of the lack of information, the consumer will attempt to mitigate the risk through the use of heuristics. Using the number and positioning of observed brands relative to each other in the attribute space, consumers infer information about the unseen brands and so improve their purchase decisions.