Edited by Guido Buenstorf
Chapter 4: Consumer Learning through Interaction: Effects on Aggregate Outcomes
Zakaria Babutsidze* INTRODUCTION 1 It is the nature of the capitalistic free market that the results of producer actions are ultimately anchored to consumer behavior. It is consumers who decide when to buy and what to buy, and how to respond to price or quality changes in products supplied to them. Thus, we believe that the analysis of any economic phenomenon should start with the analysis of consumer decisions. Consumer behavior has been analyzed from many different perspectives. Various disciplines have used different types of approach at different levels of analysis. Hansen (1972) offers an interesting classification of these approaches. According to him the models can be divided into four groups. The first group consists of the psychological models which deal with the consumers at the individual level. The second group corresponds to social–psychological models which deal with individuals and their environment. The third group is sociological, and deals with the segments of society, while the fourth group is anthropological and deals with entire societies. Economics, being a social science, is somewhere close to the anthropological group. Therefore, what the discipline should aim at is to understand the behavior of consumer populations as a united system. This is crucial for deriving useful policy advice. Thus, aggregate consumer behavior is of central importance. However, consumer society consists of heterogeneous, interacting consumers. And, as Hansen (ibid.) points out, the further you go in modeling from psychological toward anthropological models, the more important the aggregation issues become. In other words, it becomes...
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