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UGA FHCE 3100 - ch.3 Consumer Theories and Developing Models

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FHCE 3100 Lecture 7 Outline of Last Lecture I. End of consumer movement Outline of Current Lecture II. Chapter 3: Consumer Theories and Developing a ModelIII. Test  1906, 1938, 1967,1968, 1972,IV. What was impact of WWI and WW2?Current Lecture Two different economic theories Adam Smith Philosophy: free exchange  John Maynard Keynes Philosophy:  Adam Smith 1776 Author of “An Inquiry into the Nature and Causes of the Wealth of Nations” stated that: “consumers act in their own self interest and markets work with the invisible hand” Founder of modern economics Felt consumers should be given freedom *Constitution  John Maynard Keynes English economist, published The General Theory of Employment, Interest, and Money Central message was that economic activity in a capitalistic system is determined by the willingness of entrepreneurs to make capital investments If they wont do it…the government must Economists Generally Agree: Consumers are rational (having the ability to reason)  Consumers are acquisitive (having strong desire for things, ideas, and information)  We sometimes question… RATIONALITY! Are consumers rational? It depends. What I think is rational, maybe person next to me doesn’t  Ex) is the snuggie rational…?These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Having the ability to reason Is a “make your own doggie treats” maker reasonable?  It depends…  On what does it depend? Behavioral economists introduce realistic models of economic agents into economic theory Particularly:  Judgment  A judgment is a balanced weighing up of evidence preparatory to making a decision. A formal process of evaluation applies Attitude Attitude is a concept in psychology. Attitudes are positive, negative or neutral views of an “attitude object”: i.e. a person, behavior or event Attitudes come from judgments  Attitudes develop on the ABC model: affect, behavioral change, cognition The affective response is a physiological response that expresses an individual’s preference for an entity The behavioral intention is a verbal indication of the intention of an individual  The cognitive response is a cognitive evaluation of the entity to form an attitude  Ex) get on elevator with someone with way too much perfume. Your affective response is like sighing, feeling a headache. Your behavioral intention is to maybe move farther away or hold your nose. Cognitively maybe I shouldn’t have done that, maybe it was rude  This is the model. They put your behavior in these context Attitudes are expected to change as a function of experience Ex) babysat when you were younger. You did it because you liked kids/want money. Maybe you didn’t because you didn’t like kids. But now that you have them, your attitude changes What is a theory? An organized system of ideas or beliefs that can be measured  Theories are useful in guiding research and explaining behavior  Begins with curiosity:  What kind of people would buy doggie treat maker?  What is a theory?Look below Exploration Looking where others have not looked before Ex) call snuggie manufacturer and see how many UGA snuggies were ordered/sold. Who is buying this? Description Tell them you found while exploring  Describe the snuggie purchaser population: # males/females, age, location… Explanation Predicting relationships among variables (hypothesizing) A HYPOTHESIS.  I hypothesize that UGA people buy the Florida snuggies and let their bulldogs use them for bedding Model development  Representing these relationships visually  Validating Finding/testing  How would I test my theory? Theories have to be testable, valid, and able to be reputable (be able to repeat)  *Prediction The goal is to be able to predict consumer behavior… I.e. we can predict that thousands of consumers will buy exercise equipment at the start of a new year! Therefore we reevaluate our prices  *Controlling/testing we can test consumer behavior by offering “test markers”  can we control consumer behavior? Absolutely…public policy says those under 18 cannot buy tobacco  Consumer theories too… Past behavior is a strong predictor of future behavior Habit buying- Ex) buying mayo to go with your sandwich. They will send you coupons for mayo after maybe, they have you in this buying habit Brand loyalty- Brand extension (crest whitening strips)  Theory and exchange process defined Exchange process: people negotiate to reach an agreement  Give them your money in return for these goods  Transaction occurs when the exchange is fulfilled  Theory of reasoned action Assumes consumers are rational…behavioral intentions are based on:  Attitude toward specific behavior The rightness or wrongness Ex) should you punch the old lady if only one item left? Social or normative beliefs about appropriateness of the behavior Who will be judging my actions?  Theory of reasoned action Behavioral intentions are based on: Motivation to comply with normative beliefs  Consumption is based on beliefs Prospect theory know for these for exam A theory that people value gains and losses differently and, as such, will base decisions on perceived gains rather than perceived losses Thus, if a person were given two equal choices, one expressed in terms of possible gains and the other in possible losses, people would choose the former Message Framing Negatively framed Explains devastating effects if you don’t make this purchase  “time will run out on this sale” AKA: the stick Positively framed Explains benefits to be gained from purchase… “you will lose 20 lbs in 3 minutes” aka: the carrot  Endowment effect A person’s willingness to accept (WTA) compensation for a good is greater than their willingness to pay (WTP) for it once their property right to it has been established  People will demand a higher price to sell their own goods than other consumers  Theory of mental accounting Human behavior (based on our attitudes/values) affects what people set as appropriate prices for our goods and services  Ex) buy rum and coke from bar for $5


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