Rational choice and behavioural approaches to consumer issues

Abstract

Economics addresses choice and behaviour at the individual level, under assumptions relating to both information and rationality. Rational choice and behavioural models represent two different approaches to individual decision-making with respect to the parameters that shape individuals- decisions and the possibilities of reaching optimal outcomes based on individuals- preferences. Understanding how individuals take decisions is of crucial importance for contract design, particularly in the context of consumer contracts. This chapter argues that neither rational choice nor behavioural frameworks are entirely incompatible, neither contain the sole -right and general- answer to all the problems and challenges facing consumer contracting. Instead, a more nuanced approach, which is flexible enough to privilege one or the other model depending on the question to be answered, the dimension to be explained and the added value or the shortcomings of one model in a given setting, seems to be more enlightening, and in the end more desirable, at both the theoretical and the policy levels.