Can Economics Help to Understand, and Change, Consumption Behaviour?

Abstract

AbstractThis chapter assesses the contribution that economics can make to help us understand consumer behaviour and, if necessary, to try and change it. Economic theory of consumer behaviour is sophisticated and rigorous, but very limited. It excludes from consideration many of the factors which are well-recognised by other social sciences as being important. These limitations stem largely from the standard model of homo economicus. Economists are not unaware of this problem, but it is difficult to resolve it: to establish models that are tractable—for example incorporating the idea of interdependent preferences. But even simple economic theory, in which income and price are the main explanatory factors of consumer behaviour, provides the basis for potentially very effective policy instruments. If incomes fall, consumption is indeed reduced; and taxes and subsidies can substantially alter consumer behaviour. The problem is that such instruments are politically very unpopular.