Nudge theory is a concept in behavioral finance that suggests subtle changes in the way choices are presented can significantly influence people's decisions and behaviors without restricting their freedom of choice. This theory hinges on the idea that human decision-making is often irrational, and by understanding how people think and behave, it's possible to guide them toward better outcomes. It connects to historical developments in behavioral finance by highlighting the shift from traditional economic models, which assume rational decision-making, to more nuanced understandings of human behavior.
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