The Impact of Irrational Behavior on Decision-Making in Personal Finance

Chang Liu ()
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Chang Liu: University of California Irvine

A chapter in Proceedings of the 2023 2nd International Conference on Public Service, Economic Management and Sustainable Development (PESD 2023), 2023, pp 544-553 from Springer

Abstract: Abstract Emotions play a significant role in debt-driven consumption made by individuals leading them into irrational behavior that can result in substantial financial issues if not appropriately controlled. There exists a correlation between emotional attachment towards product/service purchases via loans & irrational spending practices among most people struggling with debt burdens because, over time, they feel the need to keep up with the emotional bond they have created. This can lead to a cycle of debt where consumers use additional credit, loans, or borrowing to sustain their current lifestyle choices. In this paper, we discussed several methods that help consumers avoid these negative consequences. People need to take proactive measures such as educating themselves on personal finance management and creating realistic budgets based on their income levels while considering long-term sustainability factors rather than temporary satisfaction only. By doing so, they can manage their emotional attachments effectively without compromising future financial stability while avoiding common pitfalls associated with overspending through credit purchases or other forms of loan repayment plans due to misleading information through marketing campaigns or peer pressure influences.

Keywords: Emotion; Emotion Attachment; Installment Debt; Irrational behavior (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-344-3_61

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DOI: 10.2991/978-94-6463-344-3_61

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