Irrational behavioral models of personal finance and their evolution in the digital economy

Abstract

Aim. To review the evolution of scientific concepts investigating the motives for decision[1]making based on irrational consumer behavior and to identify real changes in behavioral models   of personal finance.   Objectives. To examine the evolution of scientific concepts of the world’s leading scientists on   decision-making motives in the consumer market; to consider the effects of irrational consumer   behavior; to identify key changes in consumer buying decision behavior caused by digitalization. Methods. The article is based on the analysis of scientific works of leading classical economists,   interdisciplinary scientific research of modern foreign and domestic scientists devoted to the   issues of decision-making in the field of consumption. The institutional approach was applied,   which allowed us to study the evolution of irrational behavior in the field of personal finance   depending on the dominant social values. Results. In the process of analyzing theoretical provisions of famous scientists up to the middle   of the twentieth century, the justification of consumers’ decision-making in the consumer market   based on their desire to maximize pleasure, utility of welfare is presented. Such behavior can be   attributed to irrational behavior. Gradually, taking into account the market regulators of consumption opportunities, scientists come to the conclusion about the rational behavior of individuals. However, by the end of the twentieth century, the position of scientists changes towards   limited rationality due to the inability of individuals to adequately assess the array of information   affecting decision-making in the consumer market. On the basis of conclusions drawn by modern   scientists in the framework of interdisciplinary research, such a new direction of economic science   as “behavioral economics” emerges, which combined the knowledge of both economics and psychology. Modern research has shown some effects in behavioral finance related to the irrationality of   consumer behavior when making a purchase decision: the Veblen effect, the Diderot effect and   others. The latest research on the impact of digitalization on consumer behavior reflects the   changes taking place in consumer behavior towards rationalization.  Conclusions. The concepts and models describing the peculiarities of irrational behavior of   individuals related to decision-making and based on irrational spending of personal financial   resources from the point of view of classical economic science are considered. The evolution of   scientific concepts of irrational behavior of the world’s leading economists during two centuries   is presented. The effects of irrational consumer behavior proposed by scientists in the framework   of interdisciplinary research are studied. Among them are the Veblen effect, the Diderot effect.   The influence of digitalization on personal finance decision-making is shown.