Cognitive Capacity and Decision Making

Cognitive capacity refers to the mental ability to process information, solve problems, and make decisions. In Behavioral Development Economics, this concept explores how individuals’ cognitive limitations—like stress or lack of resources—can negatively impact their decision-making. For instance, when faced with too many choices or overwhelming problems, people may struggle to make sound decisions, often leading to choices that are not in their best interest. Understanding these cognitive factors can help policymakers design better interventions that support individuals in making more informed and effective financial and life decisions.