Consumption

‘Consumer choice theory’ is a hypothesis about why people buy things. Put simply, it says that you choose to buy the things that give you the greatest satisfaction in line with your tastes and principles, while keeping within your budget.

Behavioral economics is is a branch of economics that conducts psychological experiments to understand how people make economic decisions. These experiments have produced some interesting results about how we all make decisions about what to buy, that contradict the dominant idea of decision-making in economics (called Consumer Choice theory).

How far does our income go in buying our essentials to live? The cost of living tries to estimate the cost of the ‘typical’ consumer’s ‘basket of goods’, by collecting the prices of tens of thousands of goods and services to make a consumer price index.

Economists will often talk about the ‘household’ as though we make all of our spending or saving decisions together with everyone else under the same roof. Although households do share resources and decisions, people move between households all the time, and decision-making power is not always equal; so accounting for economies in terms of households isn’t always the best idea.