2.4 Critique of the maximizing behaviour of consumers and producers

Objective notes

3 learning objectives

2.4.1(HL)—Rational consumer choice

• Rational consumer choice assumes consumer rationality, utility maximization, and perfect information

• Behavioural economics critiques these assumptions

• Limitations include rule of thumb, anchoring, framing, availability bias, bounded rationality, bounded self-control, bounded selfishness, and imperfect information

2.4.2(HL)—Behavioural economics in action

• Choice architecture includes default, restricted, and mandated choices

• Nudge theory uses behavioural insights to influence decisions

2.4.3(HL)—Business objectives

• Firms may pursue profit maximization

• Alternative objectives include corporate social responsibility, market share, satisficing, and growth