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DOI: https://doi.org/10.63345/ijrsml.v10.i7.1
Jaya
Economics
North East Christian University
Dr. Hari Dutt Sharma
Economics
North East Christian University
Abstract— Classical economic theory has long assumed that individuals are rational agents who make consistent, utility-maximizing decisions based on complete information and stable preferences. However, growing interdisciplinary research in psychology, behavioral economics, and decision sciences has demonstrated that individual economic decisions are systematically influenced by cognitive biases—predictable deviations from rational judgment caused by mental shortcuts, emotional responses, and bounded cognitive capacity. This paper presents a comprehensive theoretical examination of cognitive biases and their influence on individual economic decision-making. It traces the intellectual evolution from rational choice and expected utility theories to bounded rationality and behavioral economics. The paper categorizes major cognitive biases relevant to economic behavior, including heuristics-based biases, motivational biases, social and contextual biases, and temporal biases. It critically evaluates their theoretical foundations, mechanisms, and implications for consumer behavior, financial decision-making, labor markets, and public policy. The paper further discusses normative and descriptive tensions, critiques of behavioral approaches, and emerging integrative frameworks that reconcile rational choice models with behavioral insights. The study concludes that cognitive biases are not random errors but systematic features of human cognition that must be incorporated into modern economic theory for greater explanatory and predictive power.
Keywords: Cognitive Biases, Economic Decision-Making, Behavioral Economics, Bounded Rationality, Heuristics, Rational Choice Theory
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