Sub-Optimal Economic Decision-Making in Modern America: Behavioral Biases, Institutional Incentives, and Empirical Trends

Presenter: Noah T. MacDonald

Faculty Sponsor: Jean Kennedy

School: Quinsigamond Community College

Research Area: Psychology and Behavioral Sciences

Session: Poster Session 1, 10:30 AM - 11:15 AM, Auditorium, A11

ABSTRACT

This research investigates whether American households have been making increasingly sub-optimal economic decisions over recent decades and analyzes the potential causes at the individual and institutional level. Traditional economic models assume humans make rational, utility-maximizing decisions; however, empirical data suggests that isn’t always the case. These findings incorporate behavioral economic theory to examine systematic deviations from rational predictions, citing bounded rationality, prospect theory, loss aversion, hyperbolic discounting, herd behavior, and nonlinear probability weighting. This research draws on national data on household debt, personal savings rates, real wage trends, and wealth inequality, as well as case studies including the early-2000s housing bubble, speculative trading in meme stocks and cryptocurrencies, and the growth of high-interest consumer borrowing. These examples demonstrate an increasing reliance on short-term financial strategies, reflected in rising debt levels and declining savings in the United States. The findings in this research further indicate that the U.S. financial, banking, and other institutional systems encourage this behavior. The data presented suggests that the average consumer in America has slowly degraded in their economic decision making, and is more focused on short-term consumption, rather than long term financial stability.


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