Rational Choice Theory as (Mis)Applied to Consumer Spending and Decision-Making: Implications for Management

The recent economic downturn seems to have been precipitated by a series of bad decisions made by consumers -- at the encouragement of opportunistic loan officers and organizations that ought to have known better and in many instances probably did -- in selecting loan products that they could not afford. While many companies and individuals walked away from the sudden fallout in the credit market wit great sums of cash, those that had purchased securities backed by bundled mortgages found themselves with virtually worthless assets, and the entire credit market crumbled. It would seem that somewhere along the line, a great number of people made choices-based either on faulty and perhaps even deliberately misleading information or an abysmal lack of foresight -- and often perhaps both.

This calls into question of the dominant theories regarding consumer choice...
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