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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