Explain Edexcel Economics why consumers may not maximise utility through herding, habit, inertia, poor computation, framing, bias and the need to feel valued.
In the USA 96 million consumers have never switched banks. 39% of consumers had accounts at the same bank as their parents. 13\% of consumers said that the process of switching involved too much time and effort.
With reference to switching banks, explain the difference between 'herding' and 'inertia'.
Knowledge 2, Application 2
Quantitative skills assessed:
QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.
Knowledge
1 mark for understanding of 'herding'
- Where consumers make choices based on the decisions of others /friends/family (1)
1 mark for understanding of 'inertia'
- Where people think the effort of switching is too great / are too lazy to switch (1)
Application
2 marks for reference to data
- Herding - 39% use the same bank as their parents (1)
- Inertia - 13% said that switching was too much time and effort (1)
(4)