The Role of Nudges and Behavioral Interventions in Financial Decision Making

Abstract

Financial decision-making, both at individual and institutional levels, plays a critical role in determining economic outcomes. Traditional economic theory posits that individuals are rational agents who make decisions based on complete information and a consistent set of preferences. However, behavioral economics has challenged this notion, highlighting cognitive biases, heuristics, and social influences that can drive suboptimal decisions. Nudges and behavioral interventions have emerged as tools to guide individuals toward better financial choices without restricting their freedom of choice. The purpose of this research is to present a descriptive investigation of behavioral interventions and nudges in financial decision-making. The main cognitive biases influencing financial behavior are first described, and then several nudge kinds and their applicability in diverse financial contexts— retirement savings, debt management, spending control, and investment decisions—are explored. Along with reviewing empirical data on nudges' efficacy, the paper addresses the ethical issues surrounding their application and pinpoints the variables that affect their effectiveness. This study aims to educate consumers, financial institutions, and policymakers about the potential advantages and constraints of behavioral interventions by providing a thorough overview of how nudges might impact financial decision-making. Keywords: Nudges, Behavioral Intervention, Financial Decision-Making, Cognitive Biases, Financial Literacy.