Random “Decision and Experienced Utility”, Adaptive “Consumer Memory and Choice”: The Impact of Mind Fluctuations and Cognitive Biases on Consumption and Classification

Abstract

In the study of consumer behavior, we believe that a distinction should be made between the subjective mental activity of consumption and the objective process of consumption experience, and that the deviation and fluctuation of “decision utility” and the randomness of “experience utility” have essential effects on consumer behavior. For one thing, purchase often precedes experience, and consumers cannot precisely predict utility and its distribution but can only make decisions based on adaptive expectations. Secondly, there is often uncertainty in the experience of goods, making predictions more difficult. Thirdly, the revision of consumer decision utility is carried out through memory in an adaptive process. We introduce two stochastic forms of decision and experience utility functions and build a two-period model. In the model, consumers make decisions based on a pre-determined decision utility function in the first period and a randomly realized experience utility function in the second period. The analysis shows that the volatility of “decision utility” and “experience utility” affects consumers in opposite directions; the former may trigger expansionary consumption, while the latter makes consumers more cautious. Finally, the consumption behaviors in the model can be divided into 24 categories based on the dimensions of chance, systematicity, luck, and deviance, corresponding to various scenarios. The total number of consumer behavior categories is a full ranking of the size relationship of the four factors mentioned above, thus 24 categories. For example, when good luck is accompanied by chance underestimation versus systematic underestimation, it leads to a better process experience for the consumer.