Irrational Consumption Decision Makingin Behavioral Economics

Ever since the 1970 s, there has been an ideological trend of reflecting on reason,which gradually gave rise to an extensive popularity in economic circles, hence forth research achievements in the area of interdisciplinary sciences, emerging as “psychology and economics” have gradually converged into unified theoretical framework and major viewpoints.The research on consumption theory in light of traditional economics is basically to give conditions for maximum utility by means of budget reins and indifference curves, and with “rational-economic man” as precondition, to describe individual consumer choices as: given certain condition, the doer comes to choose, with the pursuit of maximizing utility. As for the consumers, the description can be specifically represented as: given a budget rein, one conducts the consumption of a set of goods, targeting the maximization of the appraised utility function. However, there exists, in practical economic life, a vast area for irrational choices, including irrational consumption behavior, which cannot be convincingly accounted for by the theory of traditional economics. Thus, set in such a grand context, many scholars have shifted their attention to behavior economics, through which they’re seeking a “way-out” for the behavior of irrational choice based upon a new analytical framework.Behavior economics features an organic combination of the theory of behavior, the economic functioning rules and relevant research achievements in psychology, and even more, it probes into the leaks existing in the model of traditional economics, and meanwhile remedies what mainstream economics lacks in the fundamental assumptions concerning rational-economic man, perfect information, utility maximization, stability preference and the like. Behavior economics bases a great many of its theories(reference dependence, loss aversion, mental account, endowment effect, etc) applied in the research on irrational consumption upon elements like bounded rationality and the instability preference, and is demonstrated by means of experiments and scientific instruments, therefore a reasonable and convincing explanation is given as to every level of decision-making in irrational consumption, such as the equity premium puzzle, the winner’s curse, status-quo bias and so on. Apart from that, it offers the theoretical guidance and practical reference for those decision makers in their future decision-making, with a view to making them even “wiser” in some way.As a new mode of theory dedicated to an ever-innovating research on irrational consumption decision-making, behavior economics, owing to its uniqueness in experimental paradigm and research methods, has had a deep and lasting influence over traditional economics which has already strayed from the scope of reality, and thus taken up an even more crucial role in the entire economics system.