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Traditional consumer theory has long rested on the assumption that buyers behave rationally, making choices that maximize personal utility given their income and the prices of goods. Yet behavioral economists have increasingly challenged this assumption, arguing that real-world purchasing decisions often deviate from rational predictions because of psychological biases. One of the most striking examples of this is "price anchoring," the tendency of consumers to rely too heavily on an initial reference point when evaluating a product's value.
According to classical models, a change in the price of a good should affect demand only through relative cost: a cheaper substitute should attract buyers, and a costlier one should repel them. However, experiments in both retail and online settings have shown that the context of pricing can profoundly alter perception. When a high "anchor" price is displayed first—for instance, an original price crossed out beside a lower "sale" price—consumers are more likely to purchase the item even if the discounted price exceeds that of identical alternatives. In such cases, the initial anchor reshapes expectations, creating the illusion of a bargain. Economists Daniel Kahneman and Richard Thaler interpret this as evidence that utility is not purely objective but partly constructed from mental comparisons.
The implications extend far beyond retail marketing. In financial markets, investors confronted with an "anchored" valuation of an asset tend to resist revising that estimate, even when new data suggests the asset is overvalued. This inertia can help explain why bubbles persist longer than traditional models predict. Behavioral theorists thus argue not that classical economics is wrong, but that it is incomplete: rational choice models describe idealized behavior, while actual markets operate under the influence of perception, framing, and emotion. Recognizing this gap, contemporary research aims to integrate psychological realism into models of decision-making, seeking to capture not just how people should behave, but how they actually do.
