Human Behavior is inherently hard to predict and mostly irrational. Infact, this irrationality is often overlooked because it offers no meaningful insight or patterns behind our motivations.
In the early 70’s, Israeli-American economist Daniel Kahneman challenged the assumption that humans behave rationally when making financial choices. His research explored the fundamentals of how people handle risk and display bias in economic decision-making. He would later be awarded the Nobel Prize for his pioneering work which provided the basis for an entirely new field of study called Behavioral Economics.
Standard Economics assumes humans behave rationally, whereas Behavioral economics factors in human irrationality in the buying process.
Along with another scientific approach to studying natural human behaviors (Behavioral Science), both these fields became particularly useful to the financial industry early on. By understanding the deep seated motivations behind people’s choices, a specific interaction can be designed to influence an individual’s behavior — also known as behavioral intervention.
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