When I wrote this essay, the Black Friday weekend was about to start, and I decided that was the best topic for economics. Real and pretend price promotions drive crowds of consumers to the stores, and in the spirit of the time, they offer great deals in the stores and on the Internet. There are plenty of opportunities that will not happen again soon, or at least this is what they want their customers to think. This specific topic caught my attention because it allows us to write about economic behavior. Human behavior is very important for the economic world because it allows them to predict and analyze how their potential customers could behave.
The economics profession assumes that the behavior of people on the market can be fully explained by economic impulse. Consumers’ decisions, in accordance with the law of supply and demand, are influenced by the price, the number of goods and services offered on a given market, and the demand for these goods. The consumer obviously has limited resources, and when choosing a variety of goods, they must consider their budget. It works rationally, maximizing its usability and guided only by its own interests. If the prices of certain goods significantly decrease in relation to the prices of other goods that can satisfy consumer needs, then they buy more goods that are cheaper and, in their opinion, meet certain quality criteria, determining their utility value for the consumer.
It just so happens that on the weekend after Black Friday, I found myself in a supermarket. I did not notice crowds storming shops, despite the fact that from everywhere, they could see Black Friday deals. Yes, many people looked at different products and filled baskets, but without madness in their eyes. In this respect, this weekend did not differ from other pre-holiday days, when a lot of people bought more food already with a view to the holidays and, being more cautious, already supplied gifts for Christmas.
Why did the observed consumers not rush in mass to buy goods with the largest discounts? A rationally progressing consumer with a limited budget should be guided specifically by his own interests and penetrate the length and breadth of all shops available in the shopping center to maximize the price discounts offered under Black Friday. This observation confirms the motto often repeated by representatives of behavioral economics: “Money is Not Everything.” The consumer decision-making process is much more complex, even if we do not always fully realize this.
A fully consistent and reasonable consumer, having the opportunity to take advantage of significant price promotions for fixed goods and services, should carefully compare all available offers, select the cheapest, and make a purchase. But in reality, some consumers do not react at all too strongly to price motivations, while others react but also compare prices. Again, we ask, “What is the best solution? How customers should shop.
The other aspect that is also important is the alternative cost. The value of the best possible benefit was lost as a result of choice made. The alternative cost is the basis of economic thinking. If the alternative solution would give better results, but the opportunity cost exceeds the benefits obtained from the implementation of the adopted variant, it means that the decision made is irrational.
Perhaps consumers in the supermarket did not take advantage of the price promotions offered on Black Friday and the following Saturday and Sunday (this time trading) because they had already used other price promotions elsewhere. In this case, was the alternative cost to the used promotion in another store the resignation from the promotion in stores in this particular shopping center?
I think that this assumption would be accurate for a certain group of clients. But I also met a few friends who, when asked directly, admitted that they bought ‘what is usual” and that the confusion around Black Friday did not impress them.
Above all, an alternative cost other than the one that can be expressed in money should also be considered. When deciding to buy a product or participate in a project, it means refusing the consumption of another product or participating in another project. Obtaining the necessary price information about the entire market offer of the selected product and the product from which we give up our consumption also requires dedicating time and energy, earning additional.
This psychological cost should also be included in the calculation of the opportunity cost. However, it is difficult to measure. The fact that economic decisions require the involvement of time and energy is not discussed, but each of us can easily verify this in practice, like the fact that many of our economic choices are not optimal. For example, on Black Friday, if we penetrated all the shopping centers available to us and spent enough time comparing the discounts offered by online stores, we would theoretically have the opportunity to choose the optimal offer from among the “Black Friday promotions’. Who, however, actually acts like this?
The concept of Herbert Simon, one of the pioneers of behavioral economics, is helpful in reducing the cost of alternative economic decisions.
A self-discipline mechanism works for those who buy expensive passes for a fitness club, for example, for half a year in advance. We can, of course, pay separately for each entry from the current account, but we will treat this pass as an investment in your health. It will force us to go to the gym regularly because we want to be healthy and look good. And if we do not exercise, it will be an obvious waste of money. I assume that it will work here in order to increase self-discipline, another paradox of the so-called drowned costs. Since I have already spent so much money, I feel that it cannot ‘go to waste.’ That’s why I will practice, although I usually have a lot of excuses not to leave home. In practice, it is observed that, over time, the effect of drowned costs decreases. In the beginning, just after buying the carnet, we go to exercise regularly, but then some of us practice less and less, and some of us completely give up fitness, which does not mean that we will not buy another one.
H. Simon (the laureate of the A. Nobla Prize in Economics) pointed out that, in general, people set a minimum standard that satisfies their expectations and use it as a benchmark when making decisions. In this way, they reduce the psychological opportunity cost of decisions and save time and energy. Even if their decisions are not optimal, for them, they are satisfactory. Not always rational psychological factors influence the decisions made; moreover, people have limited access to information and the ability to process it. Even if they try to act rationally, that’s still restricted rationality.
To sum up, I think that behavioral economics rejects assumptions about the total rationality of human decisions. Sometimes we are aware that it will be difficult for us to resist temptation, and we make it difficult for ourselves to resist. Behavioral economics encompasses many fields of study that are not closely interrelated and are characterized by different assumptions. They are connected by the fact that they all reject the traditional approach based on the concept of rational choices.
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