Behavioral Economics in Financial Decision-Making: Insights from Experimental Studies
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Abstract
Laboratory studies are used to show the role of behavioral economics in making financial decisions. Traditional economic theories say that people make smart financial choices by trying to get the most out of their money. Behavioral economics, on the other hand, disagrees with this point of view by showing how cognitive biases, feelings, and social influences can make people act in ways that are not logical. This study takes the results of several experiments that looked at how psychological factors, like being too sure of yourself, not wanting to lose, and being biased toward the present, affect financial decisions like investing, saving, and managing risk. The findings indicate that people often make bad money choices because of habits and biases, which has big effects on both personal finances and market outcomes. To help people make better financial decisions, lawmakers and financial institutions can create interventions like choice architecture and "nudges." adding to the growing area of behavioral economics by showing how cognitive limitations affect financial behavior and giving useful advice on how to improve financial health.
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