MGCR 293 Chapter 3: CH3 - Consumer Behaviour and Rational Choice (mine).docx

• School: McGill University
• Department: Management Core
• Course: MGCR 293
• Professor: Sujata Madan

Document Summary

Market demand for a product is the aggregate of individual demands. So managers need to understand how individuals choose products. Our model for consumer behaviour is part of a larger whole. Most are decided with little effort (choice is obvious or impact is limited) but sometimes we encounter decisions that require more thought and have a high impact. In both cases we are governed by an internal classification scheme that tells us we prefer one choice to another. Without preference ordering, we are reduced to random choice without any future. In examining how consumers choose, we initially assume a consumer is rational and wishes to maximize his well-being. That is, to their best of their knowledge, consumers do not make choices that cause them harm. A consumer"s well-being is a function of the goods he chooses to purchase. A rational consumer maximizes his well-being given the prices of the good, personal tastes, preferences for goods and income.