What is the importance if we do not assume customers estimate the utilities of their potential consumption independently?

Usually we assume that customers have their unique individual estimations about utilities of their potential consumption, the implication of this assumption is that customers will not buy products which have higher prices than their estimated utilities. However, it is extremely difficult to tell customers’ opinions about utilities of particular products, even customers themselves cannot tell clearly what utilities they could gain completely from their consumption. Therefore, it is not reasonable to assume that customers have their independent utility judgement.

If we do not assume that customers judge the utilities they gain from their consumption independently, some common economic theories may violate or potentially violate. The rule of demand tells that when prices increase, the number of customers who are willing to pay tend to decrease. However, if we assume customers do not make their utility judgement independent, when a product’s price increases, the demand for this product could potentially increase as well. This actually happens in our real life, especially in the financial market. When a stock’s price increases, instead of more people selling the stock, it may appear to be more people buying more of the shares. This is a classic example of how people’s utility judgement could affect each other. This may also happen in auctions, a buyer could potentially buy a product with a price that is higher than his or her previous judgement.

In addition, the assumption of customers not making utility judgement independently is the base for marketing strategies. Firstly, customers not making utility judgement independently assures the importance of advertising, as if we assume customers making their utility judgement independently, it implies advertising will not change customers’ judgement about the utilities of their products, thus not change in sales. In addition, For example, making products appear to be cheap is not going to increase sales effectively, as customers are given the impression of cheap products, they could lower their expected utilities of the product, so they are less willing to pay high prices for the product, this could eventually affect the sales.

Overall, once we stop assuming customers making their utility judgement independently, some theorems may potentially violate, marketing strategies can make their theoretical sense (otherwise, marketing would have no impacts on customers’ behaviour).