Consumer Preferences And Rationality

Demand and supply have been considered, for the longest duration, the backbone of economics as they lay the fundamental principles for it. However, behind these demands and supplies are an abundant range of producers and consumers who make individual decisions based on their preferences and desires.

CONSUMER PREFERENCE:

Who are consumers? Well, any individual who acquires something in order to satiate any particular need is called a consumer i.e. in simple terms we all are consumers. We consume various commodities in our day-to-day functions without even realising it and in order to decide what to consume, we face choices that are endless. All these decisions are almost like a subconscious reflex to all our needs. However, that might not truly be the case.

Our rationality is mirrored in each decision that we make as consumers. We try our best to earmark our restricted resources in order to boost and maximise our benefits. We prefer commodities that are more advantageous and valuable in the sense that they provide us with the supreme levels of utility or in layman’s language, satisfaction. Hence, as different as these decisions might be, one thing seems to remain constant: we are always thinking at margins.

THINKING AT MARGINS:

As I mentioned before, consumers think at the margin. Now, what exactly does this mean? At the margin means to think of the next increment, the next unit that relatively tells me if my decision is actually“worth it” or not. For an example, you go 

to a fast food joint and take a look at their menu. Combo 1 offers you a burger and fries for ₹120 and Combo 2 offer you a burger, fries and a milkshake for₹200. In this scenario, what comes first to your mind when you see this in the menu? “Is the milkshake worth an additional ₹80 to me?” 

This theory of thinking at the margins helps us resolve one of the most paradoxical choices faced by economists: The Water-Diamond Paradox. Water is a life giving resource, critical to survival and yet the value of water is less than that of diamond. This is because of the simple fact that the marginal utility obtained from diamond is much more than the marginal utility of water.

WHAT IS THE BEST PREFERENCE?

Consumers are rational and hence always intend on making rational decisions with the sole objective of maximising utility. Now, utility is subjective. An athlete might obtain less satisfaction from a can of soda that might deteriorate his performance. However, I might extract an exorbitant amount of satisfaction since I don’t seem to care about my health as much as the athlete so I failed to recognise its disadvantages.

The basic point that I’m emphasizing on here is, that we make the best decisions that we can, based on our own comparisons. A doctor might think that drinking the can of soda is a senseless decision and may deem it to be irrational. I might disagree because it appeased me. 

So, there is no universal best preference as such. However, there is a best preference for me and that preference is solely dependant on my ability to compare and arrive at an inference that benefits me the most. In other words, my rationality is restricted to the extent of my ability to make a meaningful comparison and my preference will depend on it.

CONCLUSION:

Consumers are rational beings. As bounded as their rationality might actually be, it cannot be denied that each individual tries and intends to maximise their returns from the utilisation of their limited resources. Their rationality is subjective to their judgement. In addition to that, each consumer believes that their choice is the best alternative they could’ve gone for, in their own eyes. In simple words, I am rational in my eyes, and you are rational in yours.