Abstract:
Expected Utility Theory advocates that individuals make rational decisions. However it is not rare to see consumers deviate from rationality when making consumer credit decisions. Despite the financial literacy, individuals may tend to choose high cost consumer credit forms such as credit card as a mean of financing consumer goods and services which in fact suggests a deviation from economic rationality. The failure of Expected Utility Theory to explain and predict consumer credit decisions that deviate from rationality provide incentives to use an alternate theory; Prospect Theory which counts principles of perceptions and judgement that limit the rationality of choice. Accordingly this theoretical paper suggests personal factors; locus of control, social comparison and self-control and situational factors; life events and income may influence on consumer financing decisions.
