For example, economists have observed that many consumers,
when purchasing expensive products such as refrigerators and
stoves, often purchase the lowest-price models even though
they are typically the most energy inefficient—and that this low
price will be more than offset by higher operating costs in just
a few years. Economists also note that many Canadians do not
regularly contribute to Registered Retirement Savings Plans
(RRSPs) even when they would receive a clear tax advantage
from doing so. In both cases, behavioural economists cite
these observations as evidence that many consumers are not
as rational as is typically assumed. They explain the observed
behaviour by postulating that many individuals have bounded
rationality, which means that they lack the computational or
analytical ability required to make fully rational decisions.
Other economists, however, disagree with this interpretation
and for two reasons are not so quick to dispense with the
assumption of rational decision making. First, some
consumers’ inability to fully analyze a complex situation should
not be viewed as evidence of irrationality but instead should be
viewed as an additional constraint in their decision-making
process. Presumably they make what they think are the best
decisions for themselves based on what they know. And if
someone were to fully explain to them the complexity of the
situation, they may well change their decisions.
Second, the mere fact that consumers sometimes behave in
ways contrary to the predictions of our simple models should