It would be oversimplified to say that consumers are rational. With incomplete information, limited decision-making time, and emotional influences, consumers are trapped in a vicious cycle of irrational choices that minimize their utility. To visualize this, imagine a board of chess. For every move, each contestant has a few seconds to decide the optimal strategy that would match his tactic and elevate his game. Yet, there are certain constraints to this; for example, consider the psychological and time factors. The player might be overconsumed with stress which blinds his judgment while the restricted time is his enemy, rendering his decisions less than ideal.
How is this microeconomic aspect related to fashion? To explain this in a simple manner, consider the following scenario. Yesterday, you saw a post by a celebrity wearing a red pair of boots on Instagram and today you go to the mall with your friends. You only have an hour until the shops close and you decide to enter a shoe boutique that has a limited variety and yet, you find a pair of red boots that look identical to the ones you saw yesterday. You immediately get obsessed with them and choose to buy them without cross-checking prices, searching for other colors, or considering alternatives. Your decision-making is irrational: cognitive biases and bounded rationality are affecting your consuming behavior. Therefore, microeconomic theories can be applied in fashion to examine how consumers make decisions.
Anchoring and Consumer Choices
In microeconomic terms, “anchoring occurs when someone introduces a piece of information that will influence everyone regarding how they judge further bits of information, thereby leading them to jump to conclusions,” a constraint of consumer rationality as it minimizes his utility. Individuals may rely too much on the initial piece of information that they come across with brands capitalizing on this bias that is present in the world of fashion. For instance, a social media post by a popular influencer promoting a particular clothing item works as an anchor that shapes consumers’ preferences. The high level of engagement of the viral post can influence their behavior as they might consider the advertised item desirable. One other technique that is used by fashion brands is discounts which flourish upon the irrationality of consumers. The logic behind this practice is that the original price serves as an anchor point; after the discount has been applied, the lower price does not appear that bad anymore as consumers have based their decisions on the information available at the beginning. For example, fast fashion brands like Zara have taken advantage of anchoring for years by offering limited-time discounts on their clothing pieces. That way, they create a sense of urgency that motivates individuals to increase their purchases enthusiastically without evaluating their decision as it is “a pressing opportunity.”
Bounded self-control and overconsuming
It is often challenging for individuals to resist their urges and abstain from buying new pieces by regulating their consumer behavior and making decisions that conflict with their impulses. Instead, they fall into a loop of overconsuming which limits their utility and does not yield the best outcome. In the face of making emotion-based decisions, individuals rationalize their unnecessary expenses by considering them a “one-time indulgence” without realizing that they will be dissatisfied in the long run. For example, an individual who wants to build a more sustainable wardrobe by purchasing more high-quality items often finds themselves buying ill-produced, cheap clothing that does not maximize their utility. In fact, they justify the expenditures as a “one-time thing.” In the long term, their wardrobe will be overcrammed by low-quality clothes that do not match the style and wishes of the consumer. Yet, they struggle to break away from this cycle, and despite their guilt, they do not invest in products that would increase their satisfaction as they procrastinate searching for better alternatives. The aforementioned case is an instance of a consumer struggling to resist their urges and make rational economic decisions that would lead to the optimal ending. It can be deduced that bounded self-control undermines well-intended efforts to pursue ethical long-term consumption goals.
Imperfect information and Mediocre Choice
It is ironic how excess information can render us informationally bankrupt. This is a huge problem of our era as the digital world is overwhelmed by insignificant information and countless sources; consumers struggle to find the data that they desire easily, leading to unnecessary fatigue and information paralysis. The result? Microeconomic agents base their decisions on incomplete and imperfect information that constrains their utility. The irony of overloading information becomes evident if you take a second to scroll on TikTok, Instagram, and Pinterest. On these platforms, influencers, bloggers, and celebrities bombard users with outfit options, promotions, and style ideas that subliminally confuse the individual by overwhelming them with the volume of fashion content. Therefore, the consumer comes across information and advice that often contradict each other: they struggle to discern their true preferences from the trends that are not compatible with their style. This internal conflict caused by excess information can paradoxically lead to the loss of individuality and artistic expression, minimizing utility. Another related issue exacerbated by imperfect information is asymmetric information, where the seller possesses more data than the consumer involved in the transaction. For example, problematic fitting, quality, and durability can be detected only after the product has been purchased. Additionally, photo editing and digital manipulation can distort the consumers’ expectations of the appearance of the product: if they purchase the item, they make a decision based on misleading information that will not maximize their utility.
On a final note: the Constant Struggle in Fashion Economics
Cognitive biases and limited information render rationality in fashion economics impossible. Microeconomic agents struggle to make decisions that maximize their utility due to battles with internal and external forces. The influence of viral trends and the appeal of discounts and overconsumption work together to impede rational decision-making.