Understanding Consumer Behavior

Qin Dan
Professor, NUCB Business School

Behavioral economics helps explain how cognitive biases influence consumer decisions. People do not always choose rationally; instead, they rely on mental shortcuts and filtering processes. Research by Dr. Dan Qin, published in Games and Economic Behavior and Journal of Mathematical Economics, explores how individuals narrow down choices in stages before making a final selection.

Consumers typically begin by broad filtering, quickly eliminating options that seem irrelevant or unappealing. This initial stage helps reduce cognitive load and makes complex decisions more manageable. Companies can assist consumers by organizing products into clear categories, using visual cues, and reducing excess choices.

Once a shortlist is formed, detailed evaluation follows. At this stage, individuals analyze key attributes, compare options, and seek additional information such as reviews or expert opinions. Businesses can support this process by offering interactive comparison tools, structured product descriptions, and AI-driven recommendations.

One key bias affecting consumer decisions is the endowment effect, where people place higher value on what they already own, making them reluctant to switch brands. Companies can address this by offering free trials or emphasizing easy transitions. Similarly, loss aversion leads consumers to avoid perceived risks. Framing promotions as “limiting losses” rather than “gaining benefits” can be a powerful motivator.

In e-commerce, improving navigation, offering smart filtering, and highlighting best-selling products can guide consumers efficiently. In brand positioning, focusing on unique product features can ensure inclusion in the initial shortlist. In services, designing clear tiered options makes decision-making easier. Policymakers can also apply these insights by structuring choices in ways that encourage beneficial behaviors, such as participation in savings programs or health initiatives.

By understanding how consumers filter and evaluate choices, businesses and policymakers can create environments that reduce complexity and enhance decision confidence, ultimately driving better engagement and outcomes.

Reference

Qin, Dan, 2024. “Differentiating roles of the reference alternative,” Games and Economic Behavior, Elsevier, vol. 146(C), pages 196-221.
Qin, Dan, 2024. “A simple model of two-stage choice,” Journal of Mathematical Economics, Elsevier, vol. 112(C).