Some Rambling Thoughts by Fabio: In economics, we are taught to think of people as utility maximizers. However, marketers tend to be much more "cognitive" in their approach to human behavior. People buy stuff as a result of a very contextual decision process. In the marketing world, decisions to buy stuff are triggered by cost and percieved benefits, what other people are buying and what people remember about a product (as opposed to it's actual properties). Marketers also seem to take "bounded rationality" much more seriously than economists. A product doesn't get bought just because it has the lowest price or the best performance - it has to compete for limited space in the consumer's mind. That's why manufaturers pay for shelf space in stores - low price is often not enough.
In principle, the cognitive approach is not incompatible with utility theory. You could easily argue that limited memory, habit formation and trendiness can be derived from a utility maximization approach (a la Becker or even Akerlof). However, it seems more simple to postulate that people have a set of rules that they apply to some classes of economic behavior. If you take the "cognitive" approach more seriously, then you might come to following conclusions: - Some behavior is utility maximizing in the regular sense if there are heavy costs to following "bad" rules. Buying homes, for example, would probably be pretty rational. Purchase of groceries probably is done with a bunch of non-optimizing rules. (this argument follows bryan's) - The outcome of many types social interactions should not be seen as an accurate refelection of preferences and incentives, unless the persons involved understand the costs of the their actions pretty well. The outcome should be seen as the state of a system where you have lots of interacting individuals applying certain rules. This is a kind of model I rarely see in economics (although there are well known examples, but it's not typical). - A lot game theory is silly. When there is uncertainty or imperfect information, it seems more plausible that people will apply certain rules instead of figuring out insane esoteric equilibrium conditions. - Some social systems seem to contain a mixture of "rational" and "cognitive" actors. Elections, for example, have lots of rule based people (voters) and a small, but crucial, number of rational actors (politicians). Voters apply all sorts of rules to voting (pro-incumbent, for ex) that are independent of utility maximizing, while candidates seem wickedly rational because they have a lot more at stake than a single voter. - Economists need to expand the repertoire of explanations. Economists should learn how to model rule-based behaviors and interactions with the same ease as they can calculate a Langrangian multiplier. Econ 101 should start with a speech saying how people sometimes apply rules to economic behavior and at other times they act like classical utility maximizers. Students will then learn marginal analysis and models that embody rules based behaviors. So there you have it. Some rambling thoughts... Fabio