Every day, people make numerous purchasing decisions - starting from what we eat or order online to major purchases of luxury items. The traditional economic theory evaluates and views through the assumption that consumers are rational. In contrast the branch of behavioural economics decisions are influenced and commonly altered by biases. Although consumers appear to be viewed as having freedom of choice, their decisions are significantly influenced, and sometimes manipulated by firm strategies and psychological biases.

Rational Consumer Theory
The Cardinal Utility Theory, it explores utils, a unit of measurement in economics which quantifies the satisfaction/pleasure a consumer derives from consuming a good or a service. In this rational choice theory consumers aim to maximise utility as they hold on to and base the decision on prices, preferences and perfect information (a scenario derived from the Game Theory in which consumers have complete, accurate and instantaneous knowledge of all relevant factors, which includes outcomes and potential payoffs before producing a decision). In conclusion the rational consumer theory model assumes logical, co insistent decision making.

Why Consumers Aren’t Fully Rational
The study of behavioral economics challenges the original rational model by depicting systematic decision making errors. Biases in this context are systematic predictable differences where psychological, emotional and social factors affect choices rather than the previously mentioned purely logical calculations. A key bias mentioned in behavioral economics is the Mental accounting a finance concept developed by Richard Thaler, its the tendency of treating and categorizing money differently depending on its source, for example the spending a wage bonus or a tax refund more freely than earned income. The creation of mental labels by humans’ minds makes them desensitized to the comprehension that a dollar from a gift is functionally equivalent to a dollar from their wage. This alters their transactional utility, as people often value the deal or context of a purchase rather than actual absolute value of the money.

The present bias/intertemporal choice, is a key bias in terms of budgeting and properly evaluating the purchase power parity of a consumer. It explores the challenge a person has due to a difficulty balancing between present and future rewards. This bias depicts how psychological tendencies overvalue immediate rewards while undervaluing long-term consequences. This causes procrastination, poor financial planning, and unhealthy financial habits due to the lack of planning increasing the prioritization of current comfort rather than future wellbeing.

Firms exploit psychological tendencies and these bosses to design advertisements and an environment to influence customer choice. Popular strategies such as the decoy effect, pricing tiers strategy where firms introduce a third less attractive option (the decoy) to increase the sale of a different specific more expensive target option. Other more obvious ones such as default options, an example being auto-renew subscriptions, piling up while people aren’t willing to switch or turn off planning due to the sunk cost fallacy and personal habits.

In conclusion even though consumers still have choice and awareness, with education and experience reducing bias. They are still in control but influence doesn’t necessarily mean total control. Their decisions are shaped by psychological biases and firm strategies, designed to influence decisions. True control originates from understanding how decisions are influenced.