Behavioral Economics and Decision Making: Understanding Irrationality and Biases in Economic Choices


  • Liestyowati Liestyowati Telkom University Jakarta Author



Behavioral Economics, Economic Decision Making, Emotions, Cognitive Factors, Motivation, Self-Control


This research investigates the relationship between Behavioral Economics and economic decision making, with a focus on understanding the impact of emotions, cognitive factors, motivation, and level of self-control on individual economic decisions. Through a systematic literature review approach, this study presents a hypothesis which suggests that various psychological factors significantly influence economic decision making. These findings have important implications for our understanding of consumer behavior and decision-making processes in an economic context, and offer a more holistic view in designing more effective policies and strategies in promoting healthy economic behavior.


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Cognitive biases, such as loss aversion and anchoring, have been identified as key factors influencing seemingly irrational decisions in fields like economics (Klotz, 2010). Ishfaq et al. (2020) delve into how heuristic biases impact investors' irrational behavior in decision-making, emphasizing the role of personality traits. Furthermore, Whitehead et al. (2011) discuss the implications of behavioral theories on decision-making, highlighting the potential for effective public policy interventions.

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Debiasing interventions have been shown to be effective in improving decision-making and reducing cognitive biases (Morewedge et al., 2015). Financial literacy has been identified as a moderating factor that can help investors overcome behavioral biases in decision-making (Adil et al., 2021). Jurevičienė et al. (2020) assess the irrational decisions made during economic expansions, shedding light on the fluctuating nature of irrational choices over time.

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In conclusion, addressing irrational decision biases in economic decision-making requires a multi-faceted approach that includes raising awareness of biases, leveraging experience, implementing debiasing processes, and enhancing financial literacy. By understanding and mitigating these biases, individuals can make more rational and informed economic decisions, ultimately leading to better financial outcomes.

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How to Cite

Behavioral Economics and Decision Making: Understanding Irrationality and Biases in Economic Choices. (2024). Economics Studies and Banking Journal (DEMAND), 1(3), 151-165.