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Top1. Introduction
Much of economic theory is built on the assumption that consumers are rational utility maximizers (Morgenstern & Von Neumann, 1953). In other words, consumers are expected to purchase the basket (or set) of goods that will provide them the greatest benefit (utility) at the lowest price. Perfectly rational consumers also instantaneously know all information about all products (perfect information) and have no difficulty ranking different baskets of goods such that one basket will always stand out as better than all others (Arrow, 1959). If expectations are uncertain, then the basket of goods with the highest probability of maximizing utility is selected. In more advanced macroeconomic formulations, consumers also balance the benefits of savings and leisure time against the benefits of consumption, allocating their discretionary income (funds available after taxes) among multiple uses in the most efficient way possible.
However, as van den Bergh et al. (2000) point out, the basic rational maximizing approach of economics is not sufficient to explain much individual behavior relative to the environment. Social factors, like the relative gains issue described by Easterlin (1973) or social norms that define fashion and status symbols for specific groups are particularly important determinants of consumption and discarding behaviors. These can be incorporated into the rational utility maximization paradigm via the use of networked models (Janssen & Jager, 2002). There is also considerable scientific evidence that consumers use many short-cuts in their decision process and often engage in a range of “boundedly rational” behaviors that, by definition, differ systematically from what one would expect if the utility maximization assumptions hold (Devetag, 1999).
Satisficing is a form of bounded rationality that was introduced by Simon (1955). According to Simon, that individual decision making is limited by available information on one hand and the mind’s cognitive capacity on the other (Simon H, 1991; Rubinstein A 1998). While individuals may increase the available information via search, this requires a trade-off of time that individuals may not be willing to accept. In particular, given that they have limited time and cognitive capacity, when choice sets are large, individuals are not willing or able to search the entire range of possibilities. Instead they satisfice, selecting a readily available option that meets their satisfaction criteria without requiring substantial search time. This differs fundamentally from the maximizing assumption of total information and search for an optimal solution (Gigerenzer G et al., 2002).
Satisficing behavior is very common in economics and consumer purchasing behavior. Consumers do not often have the time to go to every store and examine all possible options, so they frequently satisfice. An exception occurs when consumers have low incomes and therefore are driven to optimize out of necessity. However, consumers with higher incomes can afford to shop for convenience rather than utility optimization. Therefore they are willing and able to spend more money on the first satisfactory option within their budget constraint, rather than extending their search to find the optimal option.