Examine the core cognitive theories of behavioural economics (e

The answer of the following question is given below in a detailed manner as follows :

First of all let's discuss about the last time you bought a customizable product. Maybe it was a laptop. You may have decided to simplify your decision making by opting for a popular brand or the one you already owned in the past. You may have visited the manufacturer's website to place your order. But the decision-making process didn't stop there as you now had to customize your model by choosing between different product attributes (processing speed, hard drive capacity, screen size, etc.) and you were still unsure about what functions really needed. At this stage, most tech makers will show a base model with options that can be changed based on buyer preferences. The way these product options are presented to buyers will influence the final purchases made and illustrate a number of concepts from theories of behavioral economics (BE).

First, the base model displayed in the personalization engine represents a default option. The more insecure customers are about their decision, the more likely they are to opt for the default setting, especially if it is explicitly presented as a recommended setting. Second, the manufacturer can frame the options differently using an "add" or "remove" customization mode (or something in between). In an add-on mode, customers start with a base model and then add more or better options. In an elimination framework, the opposite process occurs, in which customers have to deselect options or downgrade a fully loaded model. Previous research suggests that consumers end up choosing a greater number of features when in a delete framework rather than add (Biswas, 2009). Finally, the option framing strategy will be associated with different price anchors prior to customization, which can influence the perceived value of the product. If the final configured product ends up priced at £ 1,500, its cost is likely to be perceived as more attractive if the initial default configuration was £ 2,000 (fully loaded) rather than £ 1,000 (base). Sellers will engage in a process of careful experimentation to find a sweet spot: an option-framing strategy that maximizes sales, but set at a predetermined price that deters a minimum of potential buyers from considering a purchase in the first place.

Rational choice

In an ideal world, default values, frames, and fixed prices would not influence consumer choices. Our decisions would be the result of a careful weighing of costs and benefits and would be based on existing preferences. We would always make optimal decisions. In the 1976 book The Economic Approach to Human Behavior, economist Gary S. Becker outlined a series of ideas known as the pillars of the so-called "rational choice" theory. The theory assumes that human actors have stable preferences and are involved in maximizing behavior. Becker, who applied rational choice theory to domains ranging from crime to marriage, believed that academic disciplines such as sociology could learn from the "rational man" assumption advocated by neoclassical economists since the late 19th century. However, the 1970s also witnessed the beginning of the opposite stream of thought, as discussed in the next section.

Possible theory

While economic rationality influenced other fields of social science from the inside out, through Becker and the Chicago School, psychologists offered a reality check from the outside into mainstream economic thought. In particular, Amos Tversky and Daniel Kahneman published a series of articles that seemed to undermine the ideas about human nature held by mainstream economics. They are perhaps best known for the development of prospect theory (Kahneman & Tversky, 1979), which shows that decisions are not always optimal. Our willingness to take risks is influenced by the way the elections are framed, that is, it depends on the context.