Reference no: EM132440755

Chapter 4 (Managerial economis 9th) is entitled 'The Theory of Individual Behavior', and much of the chapter is devoted to the use of a tool called 'utility theory' that in turn serves as the underlying basis for the entire theory of consumer demand.

Utility theory is predicated on only a few, simple tenets but once acknowledged, it goes great lengths to 'explain' how consumers make choices between competing alternatives.

This theory is also extensive. It includes consumers tastes for a given product or service, their preferences for risk, but also the constraints they face.

A step back leads to a recognition that the theory is based upon a premise that is not explicitly stated, i.e., consumers behave rationally in their consumption expenditures.

Do consumers behave "rationally" (as the economist defines it)?

If so, how does the practice called "impulse buying" or buying as a result of advertising or strong sales pitches, get explained by the economics profession?

Taking the converse position: if consumers do not behave rationally what drives the behavior we observe?

If you think consumers do behave rationally, how can rational thinking explain the above behaviors?