Behavioural Economics Part3: When Anxiety Becomes Habit

Behavioural Economics – Part 3

When Anxiety Becomes Habit: How Pressure Quietly Shapes Identity and Long-Term Behaviour

Transition from Part 2

In Part 2, we examined how social comparison fuels anxiety by constantly positioning individuals within visible hierarchies of status, success, and worth. In Part 3, we move one step deeper - into what happens when this anxiety does not fade, but repeats.

1. Anxiety Is Not Always an Emergency - Sometimes It Becomes Routine

In classical economics, stress is treated as a temporary disturbance.

In real human systems, anxiety often becomes repetitive - and repetition changes behaviour.

When individuals experience the same pressure daily - performance targets, financial insecurity, social judgment, or institutional control - the brain stops treating anxiety as a signal and starts treating it as normal operating conditions.

This is not resilience.

This is adaptation under constraint.

Over time:

• Anxiety stops being questioned

• Pressure stops being named

• Discomfort becomes familiar

And familiarity, in behavioural economics, is powerful.

2. From Repeated Anxiety to Habit Formation

Behavioural research shows that habits form not only from rewards, but also from repeated avoidance of loss.

When anxiety is constant:

• People learn what not to say

• They learn where not to go

• They learn how not to stand out

These behaviours slowly crystallize into habits.

Examples:

• Silence instead of questioning

• Compliance instead of curiosity

• Overwork instead of reflection

What begins as coping becomes characteristic behaviour.

This aligns with the concept of loss aversion - individuals act not to gain happiness, but to avoid discomfort, embarrassment, punishment, or instability (Kahneman & Tversky).

3. Identity Formation Under Pressure

One of the least discussed outcomes of prolonged anxiety is identity compression.

When pressure persists:

• People stop asking “Who am I?”

• They start asking “What is safe for me to be?”

Gradually:

• A cautious employee becomes a “non-confrontational person”

• A creative student becomes “average but safe”

• A thoughtful teacher becomes “rule-compliant but emotionally distant”

This is not personality.

This is economically induced identity shaping.

Behavioural economics recognises this through adaptive preferences - individuals adjust their desires and self-image to match what seems attainable or permitted within their environment (Sen).

4. The Normalisation Trap: When Pressure Is Renamed as ‘Life’

Perhaps the most dangerous shift occurs when people stop identifying anxiety as a problem at all.

Phrases like:

• “This is how life is”

• “Everyone goes through this”

• “Nothing can be changed”

signal internalisation.

At this stage:

• External pressure no longer needs enforcement

• Institutions save costs

• Systems stabilise

Because individuals now self-regulate.

Michel Foucault described this as power becoming most efficient when it no longer needs to be visible. Behavioural economics observes the same phenomenon through internalised incentives.

5. Long-Term Behavioural Consequences

When anxiety becomes habitual and internalised, long-term outcomes emerge:

• Reduced risk-taking

• Lower innovation and questioning

• Emotional detachment

• Burnout disguised as discipline

From an economic lens, this leads to:

• Stable systems in the short term

• Declining human capital in the long term

A society may appear functional, yet operate far below its creative and ethical potential.

6. Why This Matters in Behavioural Economics

Traditional models assume rational agents responding to incentives.

Behavioural economics asks a deeper question:

What happens when incentives reshape not just choices - but people themselves?

Part 3 highlights that anxiety is not merely a psychological state; it is an economic force - one that silently alters habits, identities, and futures.

Looking Ahead

In Part 4, we will explore how institutions - often unintentionally - design environments where anxiety becomes efficient, invisible, and self-sustaining.

— Rakesh Kushwaha  

Economist & Educator  

Founder, Mathivation HUB  

Mumbai, India

References

• Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica.

• Kahneman, D. (2011). Thinking, Fast and Slow. Farrar, Straus and Giroux.

• Sen, A. (1999). Development as Freedom. Oxford University Press.

• Thaler, R. H., & Sunstein, C. R. (2008). Nudge. Yale University Press.

• Foucault, M. (1977). Discipline and Punish. Vintage Books.