From GDP to Behavioural GDP

Pranav Kumar and Jyoti Mishra

World Economics, 2026, vol. 27, issue 2, 87-108

Abstract: Traditional GDP calculations assume rational reporting by economic actors and formal sector economic activity, but more than 60% of employment in developing nations is informal, and cognitive biases lead to systematic distortions in reporting and classification of economic activity and responses to data collection by economic agents. Here we propose a Behaviourally Adjusted GDP (BA-GDP) framework, incorporating three types of corrections, an informality adjustment coefficient, a discount for human cognitive biases and a heuristic-induced misallocation penalty, which aims to correct and improve measurement of actual economic output. The paper calibrates BA-GDP for illustrative scenario-based economic analyses of India, Nigeria and Indonesia and shows that BA-GDP estimates diverge from the official data by 15-38%, with the largest correction for countries with high levels of informality and poor statistical transparency. The paper explains structural biases in GDP statistics that traditional statistical adjustments fail to correct by relying on prospect theory, anchoring bias in national accounts reporting, and status quo bias in the revision of GDP base years. BA-GDP is not proposed here as a substitute for the System of National Accounts but rather as an additional diagnostic tool that enhances the efficiency of international comparisons, development assessment and policy prioritisation.

Date: 2026
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