demand curves for goods and services. In the next section we derive this
result.
In recent years, however, behavioural economists have been conducting
research that raises some questions about the ability of traditional
economic theories to explain consumer behaviour. See Applying Economic
Concepts 6-1 for more details.
Applying Economic Concepts 6-1
Rationality, Nudges, and Behavioural Economics
Economists often use the word “rational” to describe the
central characteristic of the consumers who populate their
theories. In other words, when assuming that individuals make
decisions with the intention of maximizing their utility,
economists are assuming that individuals are rational.
Economists working in the field of behavioural economics
question the validity of this assumption. They begin by
observing how individuals actually behave—sometimes in
controlled laboratory settings—and then try to explain some of
the odd things they observe. They point to examples of
consumer behaviour that appear to indicate that individuals are
often irrational in their decision making—that is, they appear to
make decisions that are not in their best interests.