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DOI: https://doi.org/10.63345/ijrhs.net.v8.i5.1
Jaya
Economics
North East Christian University
Dr. Hari Dutt Sharma
Economics
North East Christian University
Abstract— Economic decision-making has traditionally been explained through Rational Choice Theory (RCT), which assumes that individuals are fully rational agents who consistently maximize utility based on stable preferences and complete information. However, extensive empirical evidence from psychology and behavioral economics has challenged these assumptions, demonstrating that real-world decisions are systematically influenced by cognitive biases, heuristics, emotions, and social contexts. This paper provides a comprehensive conceptual analysis of the contrast between Rational Choice Theory and behavioural approaches to economic decision-making. It traces the historical development of RCT, outlines its core assumptions, and critically examines its explanatory strengths and limitations. The paper then explores the emergence of behavioural economics, focusing on key behavioural biases such as loss aversion, anchoring, overconfidence, framing effects, and present bias. By comparing the normative and descriptive dimensions of both frameworks, the study highlights how behavioural models offer a more realistic account of human decision-making while raising important theoretical and policy-related questions. The paper concludes by arguing for an integrative perspective that reconciles rational choice principles with behavioural insights to enhance economic theory, empirical analysis, and public policy design.
Keywords— Rational Choice Theory, Behavioural Economics, Cognitive Biases, Decision-Making, Economic Theory, Heuristics
References (Indicative)
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