Economic behavior is not solely governed by rational choice and utility maximization, but is deeply shaped by underlying cognitive processes and emotional influences. This paper explores the intersection of psychology and economics to understand how heuristics, biases, risk perception, and affective states guide market decisions. Drawing on concepts from behavioral economics and cognitive psychology, the study highlights how psychological factors such as overconfidence, loss aversion, framing effects, and emotional regulation influence consumer behavior, investment patterns, and policy response. Empirical findings from experimental and real-world studies are reviewed to demonstrate how deviations from rationality explain phenomena such as bubbles, herding, and inconsistent consumption choices. By integrating psychological insights into economic theory, this discussion emphasizes the need for a more comprehensive framework that accounts for human behavior as boundedly rational, emotionally driven, and socially constructed. The findings have implications for consumer education, public policy design, and market regulation, offering a pathway towards more effective interventions that align with actual human decision-making processes.
Sadhana Dewangan (2026) studied this question.