Behavioural Economics Part1: Status, Consumption, and the Silent Cost of Social Comparison

Behavioural Economics Part 1

Status, Consumption, and the Silent Cost of Social Comparison

(A Conceptual Anchor Paper)

Classical economics assumes that human beings are rational decision-makers who consistently act to maximize utility. Yet, everyday life repeatedly contradicts this assumption. People often devote decades of effort, time, and emotional energy toward acquiring socially visible assets - homes, cars, and symbols of success - without achieving proportional satisfaction or well-being. Behavioural Economics begins precisely at this contradiction.

A striking behavioural pattern observed across societies is the prolonged fixation on material milestones, particularly home ownership. While owning a house can be economically reasonable, the excessive investment of life resources toward making it a symbol of identity reveals something deeper than rational planning. Behavioural Economics identifies this as status-driven consumption, where decisions are shaped less by intrinsic utility and more by social comparison.

Individuals do not consume in isolation. They consume under observation - real or imagined. Neighbours, relatives, colleagues, and social circles form an unspoken reference group. Within this framework, possessions transform into signals. A house is no longer merely shelter; it becomes a public declaration of success. As a result, economic behaviour shifts from need-based decision-making to comparison-based competition.

This phenomenon aligns with the concept of positional goods, where value is derived not from absolute usefulness but from relative standing. When consumption is positional, satisfaction becomes unstable. No matter how much one acquires, someone else’s acquisition can instantly reduce perceived utility. Behavioural Economics explains why such competitive consumption often leads to emotional fatigue, anxiety, and a persistent sense of insufficiency - even amid material abundance.

Another critical insight emerges when observing the allocation of cognitive and emotional resources. Prolonged engagement in status competition narrows attention. Individuals become deeply invested in external measurements - costs, finishes, specifications, and comparisons - while neglecting internal capacities such as emotional regulation, relational depth, and experiential awareness. In economic terms, this reflects a misallocation of scarce resources, not of money alone, but of time, attention, and mental energy.

Behavioural Economics challenges the traditional equation that more wealth automatically yields more happiness. Empirical research in well-being economics repeatedly shows diminishing returns of income on life satisfaction beyond a certain threshold. What remains underexplored, however, is how lack of internal readiness - the ability to experience, appreciate, and emotionally process one’s environment - limits the utility derived from material assets.

In many cases, individuals succeed in constructing impressive external structures while failing to develop the internal framework required to enjoy them. The result is a paradox: increased ownership accompanied by reduced vitality. Behavioural Economics interprets this not as a moral failure, but as a predictable outcome of cognitive biases - social comparison bias, herd behaviour, and identity anchoring to possessions.

At its core, Behavioral Economics reframes economic behavior as human behaviour. It recognizes that choices are shaped by habits, emotions, cultural signals, and psychological shortcuts. When societies collectively reward visibility over vitality, individuals rationally - but not optimally - conform. The cost of such conformity is often invisible, surfacing later as stress, loneliness, or a persistent sense of emptiness.

This opening chapter proposes a foundational question for further exploration:

Can economic well-being be sustained without parallel investment in internal cognitive and emotional capacities?

Behavioural Economics suggests that without such investment, even the most rational financial achievements may fail to deliver genuine utility.

Part 1 thus establishes the central premise of this series:

Economic outcomes cannot be fully understood through numbers alone. They must be examined through the lens of human behavior - where comparison, attention, identity, and perception quietly shape the equations of life.

To be continued…

Part 2 will explore Social Comparison Bias and the Economics of Anxiety.

— Rakesh Kushwaha  

Economist & Educator  

Founder, Mathivation HUB  

Mumbai, India

References

1.  Simon, H. A. (1957).

Models of Man: Social and Rational. New York: John Wiley & Sons.

→ Introduced bounded rationality,  supporting the argument that humans do not behave as perfectly rational agents.

     

2.  Kahneman, D. (2011).

Thinking, Fast and Slow. New York: Farrar, Straus and Giroux.

→ Supports dual-system thinking (intuition vs. reasoning), aligned with attitude-driven decisions.

3.  Thaler, R. H., & Sunstein, C. R. (2008).

Nudge: Improving Decisions About Health, Wealth, and Happiness. New Haven: Yale University Press.

→ Establishes how small behavioural shifts influence outcomes - relevant to education, leadership, and attitude.

4.  Akerlof, G. A., & Shiller, R. J. (2015).

Phishing for Phools: The Economics of Manipulation and Deception. Princeton: Princeton University Press.

→ Highlights behavioural vulnerabilities and social influence, reinforcing your real-life observation-based approach.

5.  Sen, A. (1999).

Development as Freedom. New Delhi: Oxford University Press.

→ Provides ethical and human-value grounding, aligning with the emphasis on dignity, choice, and moral economics.

6.  Dweck, C. S. (2006).

Mindset: The New Psychology of Success. New York: Random House.

→  Supports the role of attitude and belief systems in learning and performance.

7.  Becker, G. S. (1993).

Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education. Chicago: University of Chicago Press.

→ Connects economics with education and human development - important for your educator - economist positioning.