Behavioral Economics Unlocks the Psychology Behind Money Decisions

Traditional economic theories assumed that individuals make rational and optimal decisions. However, behavioral economics challenges this notion, showing that emotions, cognitive biases, and social influences often lead to suboptimal financial decisions.

This field has become increasingly influential in policy design and financial product development. Techniques like "nudging"—gently guiding people toward better decisions without restricting choice—have been used to increase retirement savings and reduce unnecessary debt. For instance, making savings plans the default option in employment forms has significantly improved financial outcomes in several countries.

Behavioral insights are now being used by governments and institutions worldwide to improve public financial behavior, from spending to saving and investing habits.