Understanding Behavioral Economics and Personal Finance
Behavioral economics plays a significant role in how people manage their personal finances. It combines elements of psychology and economics to explain why individuals make decisions that are not always rational, particularly when it comes to spending, saving, and investing.
The Influence of Emotions on Financial Decisions
One of the core concepts in behavioral economics is that emotions often drive financial decisions. People aren’t always logical when it comes to money. According to Psychology Today, fear can lead us to avoid risk while greed can cause us to overlook risk.