Theory of Rationalization

Theory of Rationalization

Classical economics stands on the radical assumption of rationalization. so let us introduce to the meaning and process of rationalization in economics.

Rationalization

Rationalization means in every situation/decision making, person use his logical / reasoning process which is observed in his behavioral patent.

Rationalization means taking appropriate decision with the help of logical / reasoning process.

Rationalization of consumer depends on following part

• Consumer taste and Preferences
• Consumer's experience in similar situation
• Consumer logical/reasoning process.
• Consumer's need / wants

Role of rationalization in consumer behavior:

Every consumer base theory in economics are based on rational behavior. Hence classical theory of consumer utility, demand, supply is stand valid if rationalization is is exist.

Following theories are assume the rational consumer behavior:

• Consumer wants more satisfaction out of limited resources.
• Consumer will exchange until marginal utility of both goods are not equal.
• Utility of every successive unit of consumption get lower than previous one.
• Consumer's wants are unlimited.
• Consumer want to maximized the total utility.

New Theory of Consumer behavior

Understanding the consumer behavior is must in every industry. Now from the classical approach of economics lets shift to modern theory of consumer behavior.

In 21st century, consumer is more conscious and affected by mass publicity of goods/services. Hence not only the rationalization but multi-disciplinary approaches are emerge.

• Socialized/welfare approach of behavior.
• Quality and health oriented approach.
• Referential approach of behavior 

1. Socialized/welfare based approach:

Consumer are now more conscious about its social responsibility and apart from own utility they are now at combine utility of social as well as public utility.

Let us understand with help of following example.

 If consumer is consider its own utility more then the end up consuming the 4 unit as per classical approach of consumer behavior.

But based on social approach to consumer the importance of public utility is more than own utility for consumer hence 5 unit of consumption is optimal.

2. Quality and health based approach:

Primary objective of consumer behavior is to consume the goods/service to maximized the not only own utility but it shouldn't harm the quality of life and health. let us understand with the help of following example.

Hence at point 3 unit total utility is maximized considering the quality and health utility, consumer not go for fourth unit

3. Referential approach of behavior:

Nowadays consumer gives more importance to references/opinions of expert group or social groups and hence decision of group is not just affected by rationalization.

Rating given by expert are plays major role in consumer behavior.