Useful choice-related concepts of consumer theory

Consumer theory is part of economics. It is a theory of the world where all the pieces fit together elegantly and are described precisely. Economics has been claimed to be a language of its own (for example, Halko 2008; Vartiainen 2004). The main benefits of using an economic theory are the exact definitions of variables and processes. Economics is a logical way of thinking, organizing, and describing actions and their consequences. The problem with economics in its classical form is that it is based on rather unrealistic assumptions (perfect information, certainty, ordered preferences, etc.) It cannot really be used when modeling actual people’s choices, which happen in a world of uncertain preferences, imperfect information, limited time, thinking costs, and other cognitive limits. In order to overcome this problem, Simon (1955) introduced the “Bounded rationality” – concept to describe the situation when people act rationally within certain limits (which are such as limited information, limited cognitive abilities, limited memory). Bounded rationality introduces a more realistic, alternative way to examine people’s decision making than mathematical modeling widely used in economics. In this study, Simon’s view is taken for granted. In other words, this study has somewhat adopted a behavioral economics view on consumer theory (for example, Rabin 1998; Frey 1994; Goldstein 2002; Vihanto 2012). To put it in a wider perspective, this means leaving the firm ground of neoclassical economics and stepping into a world of imperfections, uncertainties, and anomalies. Behavioral economics combines economics with psychology.

Consumer theory describes the decisions consumers make in order to consume something. Consumption does not necessarily mean only buying items with money and consuming them. Consumer theory and terminology can be applied to all the choices people make. For example, Gary S. Becker (Economics Nobel laureate 1992) has applied economics to various non-economic choices, mainly in education, family, and households (marriage, children, dividing tasks), crime, and discrimination. In consumer theory, consumers are expected to maximize their utility. Utility is something that makes one happy or satisfied. Utility can be monetary, but it entails many other things—for example, self-respect, social respect, satisfaction, conscience, others’ well-being, etc. Maximizing utility means that a person tries to gain as much utility (satisfaction) as she/he can.

It is assumed that consumers know their preferences. Knowing one’s preferences means that the consumers know what they want, which features they prefer to other features. In the suggested comprehensive media choice model, this knowledge does not have to be complete; vague ideas are enough. But there has to be some idea of preferences; otherwise the choices would be completely random and impossible to model or predict. The idea of preferences is relevant in the model, in recognizing which motives are more important than others and what is most important when making a decision (choosing a decision goal). Preferences will be discussed in detail in section 3.2.2.

There are two more aspects of consumer theory that are relevant in the model, namely, scarcity of resources and imperfectness of information. Due to scarce resources, we cannot use all media products available. In addition to the lack of potential interest, we do not have enough money, time, or energy. The scarcity of resources varies a lot from person to person and situation to situation. The concept of scarce resources is used in the comprehensive media choice model when forming consideration set, evaluating costs of media use, and choosing decision goal and strategy.

There are two main information-related theoretical settings in economics. Perfect information is the case when everyone has complete information on all relevant aspects of a matter. This is rather a case for theoretical considerations only since it does not apply in the real world. Most commonly, the case is that we have imperfect information. Since we are not in the world of perfect information, we actually cannot maximize our “real” utility, but we do maximize the expected utility. Due to imperfect information, there are also such phenomena as learning from past experiences, regret, and searching costs. The imperfect information concept will be used in section 7.4 when forming expectations.

Economists have applied the economic models of media choices when they have examined the television and radio program choices. This “Program choice”-research started when Steiner (1952) studied how people choose which radio channels they want to listen to. The model itself was rather simple. According to Owen & Wildman (1992), Steiner divided programs into program types and presumed that people have distinct and orderly preferences for each. He then assumed that a person has two choices: she/he will listen to their favorite program or no program at all.

Furthermore, he assumed that the programs of the same type are perfect substitutes

(people like them as much). The idea was primarily to help radio channels to organize the programs in the channels optimally. Steiner’s work was soon applied (and extended) to television program choices. Beebe’s (1977) model expands Steiner’s model by allowing people to have second and third choices in addition to non-viewing. These models are based on the idea that preferences determine which channels people choose (ceteris paribus) and that people can choose the content that will fit their preferences. The models are limited since they do not pay attention to the different intensities of preferences. Owen & Wildman (1992, p101) argue that even though the same program might be the first choice for two different viewers, the meaning of “the first choice” may vary. While the first viewer has waited for this specific program for a long time, the other viewer might just have picked the least objectionable option (Klein 1971). Spence-Owen (1977) model overcomes this problem by the concept of willingness-to-pay as a measure of preference intensity.

Their model examines the benefits (willingness to pay) and the costs of program choices. After this, the program choice models have been expanded to include government interventions Noam (1987), advertising (Wildman-Owen 1985), and program quality (Waterman 1992). Media researchers have criticized the “program choice” research, for example, Napoli (2003, p.7) writes: “Perhaps the best example of this disconnect between media economics and audience research is the extensive “program choice”

literature developed primarily by media economists”. This research has attempted to model the optimal to organize the television and radio programs under various constraints.

It is assumed that “audiences will distribute themselves across available content options” (Napoli 2003, p.7). Since these theoretical models have very unrealistic assumptions, they are not very useful in practice (Napoli 2003). Napoli (2003) states that this is an example of the lack of a multidisciplinary approach; the economists’ program choice models pay no attention at all on what is already known about audience behavior. Napoli (2003) argues that combining the models with media research results would have made them more useful. In this study, the concepts of economics are used instead of economic models.

2.3.1 Consumer theory and the proposed model

When consumer theory concepts are added to decision theory, it makes consumer behavior more understandable by providing the aim (utility maximization) and the way (rational behavior). Utility maximizing and rationality are kind of philosophical

principles. If consumers were not rational or did not try to maximize their utility, it would be quite pointless to model any kind of behavior.

Consumer theory provides the basic philosophy for consumer media choice behavior. Figure 4 illustrates how consumer theory is linked to the model in a more detailed way. The concept of scarce resources is directly used when composing the consideration set. The problem of imperfect information is used when expectations are formed.

Figure 4. How consumer theory relates to the suggested comprehensive media choice model