How Nudge Theory Explains the Magical Role of Emotions in the Decision-Making Process of Different Economic Participants During Financial Crisis

Abstract

This paper aims to determine the effect of emotions and the role of Nudge theory on the decision-making process of different economic participants during the time of financial crisis by considering resisting temptations, choice architecture, endowment effect, and “doing what the others do”. The idea of “following the heard” explains the main difference between econs and normal humans which affected their rational thinking as well as revivified misconceptions in their choices made at the time when the trend was hit by strong shocks. Paper reflects how the “post-cognitive side of emotions” managed the investment decisions and the way the government responded to the “sensitivity of economy and its participants” through altering the view of the macroeconomic environment by providing freedom of choice.