Economics, 3rd Edition

Christmas and the Rational Consumer

At the time of writing, it is a few weeks before the Christmas holiday. Millions of people throughout Europe 

will either travel to shopping centres or go online to buy gifts for friends and relatives. The media are full of 

adverts trying to persuade people to buy particular products and TV adverts are dominated by food, drink, 

chocolate, perfumes, toys and electrical goods.

Does our theory of consumer choice provide any insights into consumer behaviour at this time of the 

year? Do consumers act rationally to allocate their limited income? Many people would like to think that 

they do; most appreciate that they have a limited income and when economic times are hard (which they 

are for many countries at the time of writing) there is even more of an incentive to make budgets stretch 

that bit further and give value for money.

There is evidence, however, that consumers may not behave as rationally as they might like to think. 

The first problem is that when buying gifts consumers are not the end user and so are anticipating the 

utility of a third person – in other words, will the gift receiver actually like the present when they open it? 

The next problem is that consumers are influenced in their consumption choices by the information they 

are bombarded with by retailers – both online and ‘bricks and mortar’.

As consumers walk into shops they are often met with ‘offers’ – the number of people who stop and 

buy something as a result of these ‘offers’ is striking. In some cases they might be for so-called ‘big ticket 

items’ such as TVs which may be deliberately sold below cost to encourage purchase. Where is the 

rationality in that for the retailer? One reason is that in buying the TV the consumer invariably then also 

purchases other accessories which they need – cables, stands, wall mounting brackets, maybe even a 

games console or some DVDs to complement the wonderful new TV and before you know it the amount 

spent is far above any savings gained from purchasing the TV. We might also ask whether the consumer 

actually needed the TV in the first place – is this what they set out to buy? In some cases, of course, it is, 

but in others it is an impulse purchase and can that, by definition, be rational?

Doing the Christmas grocery shopping might be another case where rationality is compromised. Many 

stores provide information on their receipt or online order form telling consumers how much they have 

‘saved’ as a result of their purchase decisions. The consumer might have decided to buy a six-pack of 

wine for 

€48 which will ‘save’ them €6 – did they intend to buy a six-pack in the first place? If not then they 

may end up spending a great deal more than they originally intended. It doesn’t matter of course because 

‘it will all get drunk at some point so I might as well buy it’! Is that a rational statement?

The ‘savings’ list might sound impressive but the store does not offset the savings they tell you about 

by allocating the overheads of shopping – the time spent queuing, the cost of the petrol and vehicle depre-

ciation used to get to the store, the parking fee, what the shopper could have been doing if they were not 

walking round a supermarket or sitting in front of their computer making their consumption choice.

Then there is the cheerful retail operative who proudly announces to you that as a result of buying the 

two-for-one shirt offer you have ‘saved 

€30’. The answer? No, I haven’t, I have spent €30! I didn’t need two 

At th ti