IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

The Free Market Illusion Psychological Limitations of Consumer Choice

Listed author(s):
  • Th. B. C. POIESZ
Registered author(s):

    Point of departure for market regulation is that enhancing competition helps maximizing social surplus since consumer discipline stimulates innovativeness, quality improvements, and cost effectiveness. These effects however, can only take place if several conditions are met. One of these conditions is consumer rationality. Such rationality is determined by the interaction of consumer psychological characteristics and environmental conditions under which consumers have to make choices. In this paper we therefore study the potential for consumer rationality in conjunction with market developments. We find that, beyond a certain level of competitiveness, consumers increasingly rely on heuristics instead of relying on rational choice. This ultimately results in fewer incentives for innovativeness. To some degree the market itself will make up for the “rationality defects” by developing long term relations in which consumers and firms benefit from information exchange and invest in customized product offers. The paper concludes by making an inventory of possible implications for government interventions.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Article provided by KU Leuven, Faculty of Economics and Business, Review of Business and Economic Literature in its journal Review of Business and Economic Literature.

    Volume (Year): XLIX (2004)
    Issue (Month): 2 ()
    Pages: 309-338

    in new window

    Handle: RePEc:ete:revbec:20040205
    Contact details of provider: Postal:
    Naamsestraat 69, 3000 Leuven

    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ete:revbec:20040205. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (library EBIB)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.