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The Influence of Costs, Benefits and Their Interaction on the Economic Behaviour of Consumers

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Neuroeconomics

Abstract

Recent neuroscientific research on economic behaviour of consumers explores how individuals translate information into value in their brain, and what mechanisms underlie this process. The typical aim of this research is to establish how single attributes are valued and combined into a single utility, neglects findings in multi-attribute utility theory on how utility is achieved when both costs and benefits are involved. This chapter argues that it is important to consider how the marginal utility of costs and benefits changes in the respective presence of one another. This point is discussed by reviewing behavioural and brain imaging data that illuminate this interplay, with a focus on the implications on econometric models of consumer behaviour.

“Tis the sharpness of our mind that gives the edge to our pains and pleasures.”

Michel de Montaigne

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Notes

  1. 1.

    Equations (10.5a) and (10.5b) could be further generalised to account for loss aversion, which affects the derivative of costs, so that the change in cost influences benefits in a different way compared to how the change in benefits influences costs. However, this point would complicate the argument presented in this article, and it is left for future research.

  2. 2.

    The RPL is a general choice model used in applied econometrics. The utility function used to estimate demand parameters can be simplified on the basis of the assumption made by the investigator (e.g. nested logit, conditional logit, simple logit). See Berry (1994).

  3. 3.

    Contingent valuation methods allow the inclusion of a scale of probability in Eq. (10.9) to account for hypothetical bias (see Wang 1997).

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Acknowledgments

We are grateful to Matthieu Arnoult, Ariane Kehlbacher, Katarzyna Werner for their useful comments on earlier version of this text.

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Authors and Affiliations

  1. School of Social Science, Sustainable Consumption Institute, Manchester, UK

    Luca Panzone

  2. School of Psychological Science, University of Manchester, Manchester, UK

    Deborah Talmi

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  1. Luca Panzone
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  2. Deborah Talmi
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Correspondence to Deborah Talmi .

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Editors and Affiliations

  1. Differentielle and Biologische Psychologie, Rheinische Friedrich-Wilhelms- Universität Bonn, Bonn, Germany

    Martin Reuter

  2. Department of Molecular Psychology, Institute for Psychology and Education, Ulm University, Ulm, Germany and Key Laboratory for NeuroInformation, School of Life Science and Technology, Center for Information in Medicine, University of Electronic Science and Technology of China, Chengdu, China

    Christian Montag

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Panzone, L., Talmi, D. (2016). The Influence of Costs, Benefits and Their Interaction on the Economic Behaviour of Consumers. In: Reuter, M., Montag, C. (eds) Neuroeconomics. Studies in Neuroscience, Psychology and Behavioral Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-35923-1_10

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