Classic economic theory works off of the assumption that consumers make rational, informed decisions about which products to buy. Under this assumption, market forces will lead to the best producers with the highest levels of quality and service to be successful, leading to a meritocratic marketplace.

Anyone who’s ever even taken a casual glimpse at consumer behaviour knows that this is simply not how people behave. We are not rational agents making informed decisions. Instead we are creatures of habit and instinct, making decisions based more on gut feeling and psychological biases than any rational consideration.

A relatively new field of economic theory called behavioural economics endeavours to understand human behaviour in the economical sphere, and give marketers tools and data to encourage sales. (more…)