Behavioral Economics and Consumer Decision Processes

Abstract

Behavioral economics incorporates psychology in economics to get a more detailed understanding of the decisionmaking process of individuals, mostly in consumer behavior. Behavioral economics is unlike traditional economics which adopts rational decision-making but takes into account the different cognitive, emotional and social factors which prominently affect consumer decision-making. The paper will trace the influence of behavioral economics in the decision-making process by the consumers, which will focus on such concepts as heuristic, biases, and the effect of social influence. The paper also discusses the effects of these factors on suboptimal decision-making giving examples of consumer behavior in real-life situations. Moreover, the paper addresses the behavioral economics implications on marketing strategies and policy making and how the knowledge of consumer behavior can be used to create more effective marketing campaigns as well as policies. Recently, the paper also points out the current breakthroughs in AI and machine learning models, including aspect-based sentiment analysis and rule mining, that were used to understandconsumer choices better and better the marketing results (Khan, 2021; Khan, 2022; Khan et al., 2023). In this discussion, the paper will attempt to illuminate on the collision of economics and psychology with special emphasis on the significance of behavioral insights in modern economic analysis.