Festive Spirit and the Economy: The Psychological Side of Rising Spending and Investment During Festivals

However, behind these visible patterns of consumption and celebration lies an often-overlooked force — behavioral bias. These emotional tendencies shape decision-making, becoming especially prominent during festive times. When millions of people act on such biases collectively, the ripple effects extend far beyond individual choices, influencing the broader economy and financial markets alike.

🌟 The Role of Optimism

Festivals like Diwali and Dussehra naturally bring with them a wave of optimism. People tend to overestimate favorable outcomes — a phenomenon known as the optimism bias. Families spend generously, convinced that better and more prosperous days lie ahead. Businesses, driven by the same sentiment, boost production or launch new products, while investors actively trade in the markets — a trend symbolized by the Diwali ‘Muhurat Trading’ ritual.

But while this festive optimism fuels short-term growth, it can also lead to overspending and irrational investing. Consumers often stretch beyond their budgets, and investors chase inflated valuations not always grounded in fundamentals.

👥 The Herd Effect

During festivals, herd behavior becomes particularly visible. People buy not necessarily because they need something, but because “everyone else is buying.” The same behavior appears in the stock market — retail investors enter when market excitement is at its peak, influenced by conversations among friends, family, and social media buzz.

At the macro level, herd behavior synchronizes demand. Companies increase advertising budgets, ramp up inventory, and intensify promotions to stay competitive. While this drives short-term growth, it also carries risks: if demand doesn’t sustain, businesses face excess inventory, and consumers may later regret impulsive purchases.

💰 The Psychology of Spending

Another powerful driver is mental accounting — the tendency to treat festival bonuses or “celebration budgets” as separate from regular income. This allows people to spend freely on gifts, clothes, or home upgrades without guilt. As a result, the October–December quarter consistently sees higher sales in automobiles, consumer durables, and FMCG products. Banks and NBFCs further fuel this demand through festival-specific loan schemes, easy EMIs, and credit card offers.

⚡ FOMO: The Modern Trigger

In today’s digital era, the fear of missing out (FOMO) has become a dominant festive catalyst. Flash sales, “limited-time” discounts, and auspicious shopping moments create a sense of urgency. Social pressure amplifies the effect — if everyone around is spending, people feel compelled to join in. For businesses, this is a winning formula: demand surges, revenue rises, and market sentiment strengthens.

Yet, on a larger scale, such impulsive and collective spending can distort the natural rhythm of the sales cycle. For households, FOMO-driven decisions can lead to unplanned debt or misaligned investments that disrupt long-term financial goals.

🎇 The Broader Impact

India’s festive season is more than a cultural celebration — it is a key pillar of its economic rhythm. Behavioral biases during this period turn individual impulses into collective economic trends, driving consumption, credit growth, and market momentum.

Recognizing these psychological forces is essential — not to curb the festive spirit, but to ensure that the prosperity of the season is not just emotional and symbolic, but also sustainable.