Decision making in Economics -- a behavioral approach

TL;DR

This paper reviews how psychological, emotional, cognitive, and social factors influence individual decision making in economics, highlighting limitations of rational models and advocating for a behavioral approach.

Contribution

It synthesizes historical and contemporary research on behavioral factors affecting economic decision making and discusses the need for a behavioral theory over traditional rational models.

Findings

Behavioral factors significantly influence economic decisions.

Limitations of rational decision-making models are evident.

Situated learning plays a role in decision processes.

Abstract

We review economic research regarding the decision making processes of individuals in economics, with a particular focus on papers which tried analyzing factors that affect decision making with the evolution of the history of economic thought. The factors that are discussed here are psychological, emotional, cognitive systems, and social norms. Apart from analyzing these factors, it deals with the reasons behind the limitations of rational decision-making theory in individual decision making and the need for a behavioral theory of decision making. In this regard, it has also reviewed the role of situated learning in the decision-making process.