Chapter 3 - Rational Consumer Decision Making



Chapter 2

Making Rational Consumer Choices

The Chapter in Perspective

In this chapter you will learn:

* How consumers use cost/benefit analysis to make rational decisions

* About a decision making process you may use to make choices that will bring you greater satisfaction.

* Why different personal values consumers hold lead them to make different rational decisions.

* How to avoid common pitfalls that can cause consumers to make decisions that are not rational.

* That costs of gathering information make the optimal amount of information consumers should seek less than the total amount they could find.

* How a decision making process can be used by people who are considering the purchase of a computer system and Internet access.

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Chapter 2 - Study Guide

Reading Outline

I. Why are all consumers forced to make decisions?

II. What is rational consumer decision making?

III. What role do personal values take in making rational consumer decisions?

A. What are personal values?

B. How are personal values formed?

C. What is value clarification?

D. How can value clarification help consumers make better decisions?

E. How are personal values and goals related to each other?

IV. How can a decision making process help consumers make better choices?

A. Why is it necessary for consumers to realize when a decision needs to be made?

B. Why is identifying possible alternatives a necessary step in the decision making process?

C. How may consumers evaluate their alternatives?

D. What is the difference between making a decision and committing yourself to a decision you have made?

E. Why is it important for consumers to evaluate the results of decisions they make?

V. What are some common pitfalls of rational consumer decision making?

A. Why should consumers try to avoid most impulse buying?

B. What are the costs and benefits of habit buying?

C. Why should consumers demand and read written agreements for the decisions they make?

D. What trade-off do consumers make when they buy on credit?

E. Why should consumers generally try to avoid conspicuous consumption?

VI. How is time management related to making rational consumer decisions?

A. Why is Parkinson's Law often a problem in making rational consumer decisions?

B. What steps may consumers take to avoid problems associated with Parkinson's Law?

VII. What trade-off do consumers make when they choose to spend little time searching for information that will help them make the best possible choice in the products they buy?

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Making Rational Consumer Choices

VIII. How may consumers use the decision-making process to make rational decisions when they purchase technology-based products?

A. Why are consumers faced with an increasing number of decisions that are based on new technology that they may not understand?

B. Why do advancements in technology cause many products to become obsolete before they are worn out or used up?

C. Why do technology-based products often depreciate rapidly?

D. What tradeoffs do consumers often make when they purchase new types of technology-based products?

E. Why is it important for consumers to distinguish between product they want and those that they need?

H. How may consumers use a data grid to help them make better decisions when they purchase technology-based products?

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Chapter 2 - Study Guide

Key Terms in Context

Directions: Place the Key Term from the list below in the appropriate blank to correctly complete each sentence. Because there are relatively few Key Terms in this chapter several of those listed are review items from Chapter 1.

conspicuous consumption Internet service provider (ISP)

cost/benefit analysis life-span goal

Parkinson's Law technological obsolescence

rational consumer decision making monopoly

transaction cost values

1. Paula paid a(n) _______________________________ in terms of the time she spent gathering information about cars before she bought her new Ford.

2. Michael found only one local shop that would repair his bicycle. The owner of that business had a(n) ____________________ in that market.

3. According to __________________________ work expands to fill the time available.

4. Neil had to choose a(n) ______________________ so he could search the Web with his computer.

5. Rachel has set a(n) _____________ to become a French teacher and study French history in Paris.

6. When people consider looking for more information about a possible purchase they

should undertake __________________ ______________________ to see if the information they are likely to find is worth the time and effort they will use.

7. Tom and I often make different choices because we have different personal

_________________.

8. Sara’s year-old computer has lost value because of _______________________ .

9. Nancy's expensive new sports car is a good example of _______________________ because she knows she can't afford it but bought it anyway to impress her friends.

10. People who use a(n) ______________________________________ process are likely to make better choices than people who don't.

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Making Rational Consumer Choices

Using Consumer Skills

Directions: Explain how you would complete each step in the decision making-process if you wanted to purchase a satellite dish for your television?

1. What would cause you to realize you need to make a decision?

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2. How would you identify alternative choices you could make?

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3. How would you gather and evaluate information?

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4. What steps would you take to commit yourself to your decision?

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5. How would you evaluate the results of your choice?

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Chapter 2 - Study Guide

Trial Test

Directions: Circle the letter of the best answer for each question.

1. Consumers are forced to make decisions when they shop because:

a they have a limited amount of money to spend

b. there are many products from which they may choose

c. they have values that are different from those held by other consumers

d. all of these are possible answers

2. To make rational decisions consumers must:

a. use their scarce time and money economically

b. purchase the least expensive product

c. make sure they have found the best quality product

d. gather all information about the product they can find

3. If you buy a new pair of shoes for $72 your transaction cost would be the value of:

a. a new coat that was your second choice

b. the value of the time you spent looking for the shoes

c. the time you spent earning the $72

d. a pair of $150 shoes you like but can't afford

4. When consumers use cost/benefit analyses they are trying to:

a. find the product that will make them most satisfied

b. buy the product that will bring the greatest net benefit

c. find the product that has the lowest price

d. buy the product with the highest quality

5. People's personal values are generally based largely on:

a. values held by their family and community

b. what they have been taught in school

c. what they see on television

d. laws that are passed by the government

6. The fact that people have different personal values:

a. leads them to always argue with each other

b. causes them to make different rational decisions

c. makes it more difficult for people to buy and sell goods and services

d. results in dissatisfaction with consumer protection laws

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Making Rational Consumer Choices

7. A consumer’s decision to buy a car is:

a. only on a need to obtain transportation

b. linked to the same set of values held by all consumers

c. rarely the result of a cost-benefit analysis

d. made as a result of many personal values

8. Clarifying personal values can help consumers make better choices because it can help them:

a earn more money

b. decide what they want most

c. find better quality products

d. make decisions quickly

9. Goals are different from values in that they:

a. are specific situations people wish to achieve

b. are more realistic and measurable

c. are easier to plan for and achieve

d. are more short-term than long-term in nature

10. Deciding to act is an important part of the decision making process because:

a. otherwise people will do nothing

b. it leads consumers to take the other steps in the process

c. consumers can't make choices unless they take an action

d. it helps consumers evaluate their alternatives

11. When making a decision, consumers should attempt to identify:

a. every possible alternative

b. as many alternatives as they can reasonably consider

c. at least several alternatives

d. all the alternatives recommended by their friends

12. Impulse buying is often not a rational consumer choice because it:

a. causes people to spend money they need for other purchases

b. causes people to buy products with little value

c. takes too much time

d. forces consumers to choose among too many alternatives

13. Habit buying can help consumers make rational choices by allowing them to:

a. buy products that have the greatest value

b. reduce the time they use making consumer decisions

c. spend less money than they otherwise would

d. avoid using the decision making process

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Chapter 2 - Study Guide

14. In general, as products consumers buy become more expensive they should:

a. avoid buying these products if they can

b. buy these product quickly to avoid price increases

c. spend more time making sure they make the best choice

d. rely more on advice from people who are experts

15. Although most people realize that conspicuous consumption is wasteful, many consumers still buy products to impress other people probably because:

a. they aren't very smart

b. they gain satisfaction from showing off their wealth

c. they have personal values that are incorrect

d. they don't use a decision making process

16. Finding all the information possible about a product is not a rational choice if:

a. it causes you to buy a product that is too expensive

b. it takes up too much of your valuable time

c. it does not help you make up your mind

d. the product's producer supplies information for free

17. People who are wealthy often spend little time evaluating their consumer decisions because:

a. they don't have personal values

b. they value their time more than other people who have less money

c. they hire other people to make their choices for them

d. they don't care if they waste money

18. According to Parkinson's Law:

a. if something can go wrong it will

b. what ever you need most is what you will be out of

c. the more important a job is the more likely you are to make a mistake

d. a job will take up as much time as there is to do it

19. When consumers consider technology-based products they should realize that:

a. the value of the product may depreciate rapidly

b. they will not be able to use the decision-making process effectively

c. the product will probably become more expensive over time

d. there will be little current information available about the product

20. When a new technology-based product becomes available, consumers should:

a. expect them to be defective

b. avoid buying them for at least one year

c. buy the model which is offered for sale at the highest price

d. expect to pay more if they buy immediately than if they wait until later

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Making Rational Consumer Choices

Short Answer Questions

1. What problems are consumers who do not practice rational decision making likely to encounter in their lives?

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2. What role does values clarification have in the rational decision making process?

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3. Why is it important to identify and evaluate many alternatives when important consumer decisions are made?

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4. What are several pitfalls that typically cause consumers to not make rational decisions?

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5. What does time management have to do with the rational decision making process?

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Chapter 2 - Study Guide

Suggestions for Further Learning

Directions: Investigate a recent decision that has been made by your local government. Write an essay that compares the way this choice was made with how it would have been made if the decision-making process described in this chapter had been used. Do you believe the people of your community were well served by their government in this situation? Explain your reasons for your answer.

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