Economics of Consumer Behavior by Maitri Varaiya

Research Project Outline: The Economics of Consumer Behaviour By Maitri Varaiya.

GOAL: Understand the historical and theoretical roots of consumerbehaviour.

1. What is Consumer Behaviour, and How Has the Field Evolved?

Consumer behaviour, an interdisciplinary field, encompasses economic considerations, decision-making, and the psychological, social, and cultural context within which choices aremade. The evolution of consumer behaviour as a discipline has advanced from a simple rational view of maximising utility to a complex inquiry that borrows from economics, psychology, sociology, and cultural studies.

The early scholars in classical economics, such as Adam Smith, David Ricardo, and Jeremy Bentham, developed models of human behaviour from the perspective of rational actors, in which individuals were concerned with decisions that would maximise their utility, assuming they had complete information and perfect foresight. Consumption was treated as a mechanicaloutcome of income, price, and preferences. The assumption of economic man, a self-interested, utility-maximising agent, dominated economic theory well into the 20th century.

However, this reductionist view failed to account for numerous observable phenomena in the real world, such as brand loyalty, impulse buying, emotional attachment to products, and persistent market inefficiencies. The emergence of marketing studies, psychology, and later behavioural economics prompted a significant paradigmatic shift. In the mid-20th century, thinkers such as Herbert Simon introduced the concept of bounded rationality, arguing that cognitive limitations and information asymmetry constrain human decision-making.

Marketing and psychology scholars, such as Philip Kotler, Leon Festinger, and Abraham

Maslow has addressed motivation, attitude formation, and social influence, thereby laying the groundwork for a comprehensive understanding of consumer behaviour. By 2001, digital platforms, neuroeconomics, and machine learning had further dynamised the field, enabling institutions to study consumer behaviour through real-time observation and psychometric profiling.

In effect, consumer behaviour matured into an immensely intricate and layered body of knowledge, investigating not only how consumers make decisions but also why, drawing from individual psychology, social interaction, and technologically mediated cultural narratives.

Click on the report to read the whole research paper