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- Herausgeber: John Wiley & Sons
- Kategorie: Geisteswissenschaft
- Serie: BPS Textbooks in Psychology
- Sprache: Englisch
A comprehensive overview of contemporary economic psychology
Economic Psychology presents an accessible overview of contemporary economic psychology. The science of economic mental life and behavior is increasingly relevant as people are expected to take more responsibility for their household and personal economic decisions. The text will, in addition to reviewing current knowledge on each topic presented, consider the practical and policy implications for supporting economic decision making. Economic Psychology examines the central aspects of adult decision making in everyday life and includes the theories of economic decision making based on risk, value and affect, and theories of intertemporal choice. The text reviews the nature and behavioral consequences of economic mental representations about such things as material possessions, money and the economy.
The editor Robert Ranyard—a noted expert on economic psychology—presents a life-span developmental approach, from childhood to old age. He also reviews the important societal issues such as charitable giving and economic sustainability. This vital resource:
- Reviews the economic psychology in everyday life including financial behaviour such as saving and tax-paying and matters such as entrepreneurial activity
- Offers an introduction to the field and traces the emergence of the discipline, from Adam Smith to George Katona and Herbert Simon
- Includes information on societal issues such as charitable giving and pro-environmental behaviour
- Considers broader perspectives on economic psychology: life-span psychological development from childhood to old age
Written for students of psychology, Economic Psychology reviews the most important information on contemporary economic psychology with a focus on individual and household economic decision making, ranging widely across financial matters such as borrowing and saving, and economic activities such as buying, trading, and working.
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Economic Psychology
EDITED BY
ROB RANYARD CENTRE FOR DECISION RESEARCH, UNIVERSITY OF LEEDS, UK
This edition first published 2018 by the British Psychological Society and John Wiley & Sons Ltd. © 2018 John Wiley & Sons Ltd
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Library of Congress Cataloging-in-Publication Data
Names: Ranyard, Rob, editor. Title: Economic psychology / edited by Rob Ranyard. Description: Hoboken : Wiley-Blackwell, 2017. | Series: BPS textbooks in psychology ; 2380 | Includes bibliographical references and index. | Identifiers: LCCN 2017014502 (print) | LCCN 2017016417 (ebook) | ISBN 9781118926475 (pdf) | ISBN 9781118926390 (epub) | ISBN 9781118926482 (hardback) | ISBN 9781118926345 (paper) Subjects: LCSH: Economics—Psychological aspects. | BISAC: BUSINESS & ECONOMICS / Consumer Behavior. Classification: LCC HB74.P8 (ebook) | LCC HB74.P8 .E3196 2017 (print) | DDC 330.01/9—dc23 LC record available at https://lccn.loc.gov/2017014502
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CONTENTS
Preface
Notes on Contributors
Acknowledgements
PART 1 Fundamentals
1 Introduction to Economic Psychology: The Science of Economic Mental Life and Behaviour
1.1 INTRODUCTION
1.2 THE EMERGENCE OF THE DISCIPLINE
1.3 RESEARCH METHODS
1.4 ECONOMIC MENTAL REPRESENTATIONS
1.5 FINANCIAL BEHAVIOUR AND ECONOMIC ACTIVITY
1.6 LIFE-SPAN PERSPECTIVES
1.7 ECONOMIC PSYCHOLOGY AND SOCIETY
1.8 SUMMARY
NOTE
REVIEW QUESTIONS
REFERENCES
FURTHER READING
2 Theories of Economic Decision-Making: Value, Risk and Affect
2.1 INTRODUCTION
2.2 VALUE AND UTILITY
2.3 RISK AND UNCERTAINTY
2.4 DEVELOPMENTS BASED ON SUBJECTIVELY EXPECTED UTILITY (SEU)
2.5 BEYOND UTILITY-BASED THEORIES
2.6 HOT DECISIONS
2.7 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
3 Future-Oriented Decisions: Intertemporal Choice
3.1 INTRODUCTION
3.2 RATIONAL INTERTEMPORAL CHOICE
3.3 ANOMALIES IN INTERTEMPORAL CHOICE
3.4 EXPLAINING ANOMALIES
3.5 FRAMING EFFECTS
3.6 WHAT DO WE CARE ABOUT WHEN WE MEASURE INTERTEMPORAL CHOICE?
3.7 SUMMARY
NOTES
REVIEW QUESTIONS
REFERENCES
FURTHER READING
PART 2 Research Methods
4 Research Methods for Economic Psychology
4.1 INTRODUCTION
4.2 QUALITATIVE METHODS
4.3 QUANTITATIVE METHODS
4.4 CONCLUSION
4.5 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
5 Assessing Psychological Dispositions and States that Can Influence Economic Behaviour
5.1 INTRODUCTION
5.2 PSYCHOLOGICAL DISPOSITIONS AND ECONOMIC BEHAVIOUR
5.3 PSYCHOLOGICAL STATES AND ECONOMIC BEHAVIOUR
5.4 METHODOLOGICAL ISSUES IN ASSESSING DISPOSITIONS AND STATES
5.5 SUMMARY
NOTES
REVIEW QUESTIONS
REFERENCES
FURTHER READING
6 Developing, Evaluating, and Using Subjective Scales of Personality, Preferences, and Well-Being: A Guide to Psychometrics for Psychologists and Economists
6.1 INTRODUCTION
6.2 THE IMPORTANCE OF PSYCHOMETRICS FOR ECONOMIC PSYCHOLOGY RESEARCH
6.3 STEPS IN DEVELOPING A SCALE
6.4 OTHER STEPS AND CONCLUSION
6.5 SUMMARY
NOTE
REVIEW QUESTIONS
REFERENCES
FURTHER READING
PART 3 Economic Mental Representations
7 The Psychological Meaning of Money
7.1 INTRODUCTION
7.2 MONEY: ECONOMIC AND PSYCHOLOGICAL PERSPECTIVES
7.3 PREDICTIONS
7.4 THE METHOD OF MONEY PRIMING: AKIN TO GETTING A TASTE OF BIG MONEY
7.5 RESULTS
7.6 SUMMARY
ACKNOWLEDGEMENTS
REVIEW QUESTIONS
REFERENCES
FURTHER READING
8 Mental Accounting and Economic Behaviour
8.1 INTRODUCTION
8.2 BROAD MENTAL ACCOUNTS
8.3 MENTAL ACCOUNTS FOR SPECIFIC FINANCIAL DECISIONS
8.4 OTHER CATEGORIZATIONS OF MONEY
8.5 FUNCTIONS OF MENTAL ACCOUNTS
8.6 DETERMINANTS OF MENTAL ACCOUNTING
8.7 CONCLUSION
8.8 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
9 How Laypeople Understand the Economy
9.1 INTRODUCTION: UNDERSTANDING ECONOMICS IS HARD YET EXPECTED
9.2 INTERACTING VARIABLES
9.3 USING METAPHORS
9.4 FINANCIAL LITERACY
9.5 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
10 The Citizen’s Judgements of Prices and Inflation
10.1 INTRODUCTION
10.2 PRICE EVALUATION
10.3 INFLATION
10.4 POLICY IMPLICATIONS
10.5 SUMMARY
NOTES
REVIEW QUESTIONS
REFERENCES
FURTHER READING
11 Materialism and the Meanings of Possessions
11.1 INTRODUCTION: THE SOCIO-ECONOMIC CONTEXT OF POSSESSIONS AND MATERIALISM
11.2 THE PSYCHOLOGICAL MEANINGS OF POSSESSIONS
11.3 PSYCHOLOGICAL ASPECTS OF MATERIALISM
11.4 MATERIALISM AND SUBJECTIVE WELL-BEING
11.5 SUMMARY
NOTES
REVIEW QUESTIONS
REFERENCES
FURTHER READING
PART 4 Financial Behaviour
12 Defining and Influencing Financial Capability
12.1 INTRODUCTION
12.2 A NEW CONCEPTUALIZATION OF FINANCIAL CAPABILITY
12.3 WAYS TO INFLUENCE FINANCIAL CAPABILITY
12.4 CONCLUSION
12.5 SUMMARY
NOTES
REVIEW QUESTIONS
REFERENCES
FURTHER READING
13 Saving Behaviour: Economic and Psychological Approaches
13.1 INTRODUCTION
13.2 ECONOMIC PERSPECTIVES
13.3 PSYCHOLOGICAL APPROACHES
13.4 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
14 The Psychology of Borrowing and Over-Indebtedness
14.1 INTRODUCTION
14.2 DETERMINANTS OF BORROWING
14.3 CREDIT CHOICE PROCESSES
14.4 REPAYMENT STRATEGIES
14.5 ROUTES TO OVER-INDEBTEDNESS
14.6 PSYCHOLOGICAL CONSEQUENCES OF DEBT
14.7 POLICY IMPLICATIONS
14.8 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
15 Behaviour in Financial Markets
15.1 INTRODUCTION
15.2 DO STOCKS ALWAYS TRADE AT THE ‘RIGHT’ PRICE?
15.3 COGNITIVE INFLUENCES ON INVESTOR BEHAVIOUR
15.4 EMOTIONAL INFLUENCES
15.5 SOCIAL INFLUENCES
15.6 POLICY IMPLICATIONS
15.7 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
16 Tax Behaviour
16.1 INTRODUCTION
16.2 TAXES AND TAX COMPLIANCE
16.3 TAX ATTITUDES BY INDIVIDUAL TAXPAYERS
16.4 PROFIT SHIFTING AND AGGRESSIVE TAX PLANNING BY COMPANIES
16.5 REGULATION STRATEGIES BY TAX AUTHORITIES
16.6 INTERACTION CLIMATES BETWEEN TAXPAYERS AND TAX AUTHORITIES
16.7 PRACTICAL IMPLICATIONS
16.8 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
PART 5 Economic Activity
17 Volunteer Organizations: Motivating with Awards
17.1 INTRODUCTION
17.2 ORGANIZATIONAL FORMS
17.3 AWARDS AS MOTIVATION
17.4 CONDITIONS FOR SUCCESSFULLY GIVING AWARDS TO VOLUNTEERS
17.5 EFFECTS OF AWARDS ON PERFORMANCE
17.6 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
18 Entrepreneurial Activity
18.1 INTRODUCTION
18.2 ENVIRONMENTAL FACTORS AND ENTREPRENEURSHIP
18.3 REASONS FOR ENGAGING IN ENTREPRENEURIAL ACTIVITY
18.4 PERSONALITY CHARACTERISTICS OF ENTREPRENEURS
18.5 PSYCHOLOGICAL TRAPS IN ENTREPRENEURSHIP
18.6 TEACHING ENTREPRENEURSHIP
18.7 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
19 The Economic Psychology of Gambling
19.1 INTRODUCTION
19.2 LOTTERIES
19.3 SCRATCH CARDS
19.4 ROULETTE
19.5 FRUIT MACHINES
19.6 SPORTS BETTING
19.7 CARD GAMES
19.8 PROBLEM GAMBLING
19.9 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
PART 6 Life-Span Perspectives
20 Economic Socialization: Childhood, Adolescence, and Early Adulthood
20.1 INTRODUCTION
20.2 A CONTEXTUAL FRAMEWORK FOR ECONOMIC BEHAVIOUR DEVELOPMENT
20.3 THE ROLE OF PARENTS IN ECONOMIC SOCIALIZATION
20.4 THE STUDY OF ECONOMIC BEHAVIOUR DEVELOPMENT FROM CHILDHOOD THROUGH EARLY ADULTHOOD
20.5 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
21 Childhood Psychological Predictors of Lifelong Economic Outcomes
21.1 INTRODUCTION
21.2 LITERATURE REVIEW
21.3 LIFECOURSE PERSPECTIVE
21.4 METHODOLOGICAL CHALLENGES
21.5 POLICY IMPLICATIONS
21.6 CONCLUSION
21.7 SUMMARY
NOTES
REVIEW QUESTIONS
REFERENCES
FURTHER READING
22 The Economic Psychology of Financial Decision-Making and Money Management in the Household
22.1 INTRODUCTION
22.2 FINANCIAL DECISION-MAKING IN THE HOUSEHOLD
22.3 HOUSEHOLD MONEY MANAGEMENT
22.4 CONCLUSION
22.5 SUMMARY
NOTES
REVIEW QUESTIONS
REFERENCES
FURTHER READING
23 Ageing and Economic Decision-Making
23.1 INTRODUCTION
23.2 THE ROLE OF COGNITIVE DELIBERATION IN DECISION-MAKING
23.3 THE ROLE OF EXPERIENCE-BASED KNOWLEDGE IN DECISION-MAKING
23.4 THE ROLE OF EMOTIONS IN DECISION-MAKING
23.5 THE ROLE OF MOTIVATION AND STRATEGIES IN DECISION-MAKING
23.6 INTERVENTIONS
23.7 DIRECTIONS FOR FUTURE RESEARCH
23.8 SUMMARY
ACKNOWLEDGeMENTS
REVIEW QUESTIONS
REFERENCES
FURTHER READING
PART 7 Economic Psychology and Society
24 Psychological Determinants of Charitable Giving
24.1 INTRODUCTION
24.2 DONATION DECISIONS: COSTS AND REWARDS
24.3 CAUSES THAT ELICIT MORE HELP
24.4 SPECIFIC INDIVIDUALS IN NEED
24.5 EFFECTIVENESS AND IMPACT
24.6 WHO HELPS – AND WHEN?
24.7 MAIN RESEARCH METHODS IN THE STUDY OF CHARITABLE GIVING
24.8 FUTURE RESEARCH DIRECTIONS
24.9 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
25 Life satisfaction and Emotional Well-Being: Psychological, Economic and Social Factors
25.1 INTRODUCTION
25.2 VIEWS OF WELL-BEING IN ECONOMICS AND PSYCHOLOGY
25.3 MEASUREMENT OF SUBJECTIVE WELL-BEING
25.4 FACTORS INFLUENCING SUBJECTIVE WELL-BEING
25.5 CONSEQUENCES OF SUBJECTIVE WELL-BEING
25.6 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
26 Living in Poverty: Understanding the Financial Behaviour of Vulnerable Groups
26.1 INTRODUCTION
26.2 DEFINITION OF POVERTY
26.3 CHARACTERISTICS OF FINANCIAL BEHAVIOURS
26.4 VULNERABLE POPULATION GROUPS
26.5 POLICY IMPLICATIONS
26.6 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
27 Economic Psychology and Pro-Environmental Behaviour
27.1 INTRODUCTION
27.2 BOUNDED RATIONALITY
27.3 THE ENVIRONMENT AS A SOCIAL DILEMMA
27.4 CONCLUSION
27.5 SUMMARY
REVIEW QUESTIONS
REFERENCES
FURTHER READING
28 Insurance Behaviour and Society
28.1 INTRODUCTION
28.2 INSURANCE AS RISK PROTECTION
28.3 MIS-SELLING
28.4 INSURANCE FRAUD
28.5 SUMMARY
NOTES
REVIEW QUESTIONS
REFERENCES
FURTHER READING
Index
EULA
List of Tables
Chapter 5
Table 5.1
Table 5.2
Table 5.3
Table 5.4
Table 5.5
Chapter 6
Table 6.1
Chapter 8
Table 8.1
Chapter 12
Table 12.1
Chapter 14
Table 14.1
Chapter 16
Table 16.1
Chapter 19
Table 19.1
Chapter 22
Table 22.1
Chapter 25
Table 25.1
List of Illustrations
Chapter 2
Figure 2.1
Schematic form of (a) value-function and (b) weighting-function in prospect theory.
Chapter 8
Figure 8.1
Hedonic editing of positive and negative events.
Chapter 9
Figure 9.1
Stocks and flows as represented in the forecasting and policy subsystem of MONIAC.
Figure 9.2
Synoptic map of causal links identified by one participant. The – signs indicate negative correlations.
Chapter 10
Figure 10.1
Price evaluation according to adaptation level theory (see Niedrich et al., 2001). V
ik
is the price to be evaluated (in the evaluation context k) and V
al,k
is the adaptation level. The price judgement (E
ik
) depends on the distance between the target price and the adaptation level.
Figure 10.2
Price evaluation in range theory (see Niedrich et al., 2001). V
ik
is the price to be evaluated (in the evaluation context k), V
min,k
and V
max,k
are the minimum and the maximum consumer’s reference prices. The price judgement (E
ik
) depends on the ratio of the difference between the target price and the minimum price, and the range.
Figure 10.3
Price evaluation in range-frequency theory (see Niedrich et al., 2001). V
ik
is the price to be evaluated (in the evaluation context k), V
min,k
and V
max,k
are the minimum and the maximum consumer’s reference prices. The price judgement (E
ik
) depends on a weighted mean of the range-based evaluation (R
ik
) and the frequency-based evaluation (F
ik
), where Rank
ik
is the rank of the target price and N
k
the number of contextual prices.
Figure 10.4
Sources of information for inflation perceptions and expectations.
Chapter 12
Figure 12.1
A framework for understanding behavioural and financial capability.
Chapter 15
Figure 15.1
Overview of stock market behaviours discussed in this chapter, their psychological explanations, and their potential consequences for stock prices and investments.
Chapter 16
Figure 16.1
Australian Taxation Office compliance model.
Figure 16.2
Slippery slope framework.
Chapter 20
Figure 20.1
Bronfenbrenner’s bioecological model.
Chapter 25
Figure 25.1
Hypothesized conceptual model positing that progress of work, family life, and leisure goals increases emotional well-being, that time pressure negatively influencing performance of instrumental activities decreases goal progress and emotional well-being, that practising time management has indirect positive effects on emotional well-being by decreasing time pressure and its negative effects on goal progress, and that material wealth has indirect negative effects on emotional well-being by increasing and indirect positive effects by decreasing time pressure and its negative effects on goal progress.
Figure 25.2
How the hypothesized conceptual model in
Figure 25.1
is augmented by positing that individuals with a less emotional stable personality frequently may fail to cope with time pressure leading to time stress which exaggerates the negative effects of time pressure on emotional well-being.
Chapter 28
Figure 28.1
A cycle insurance decision represented as a decision tree.
Guide
Cover
Table of Contents
Preface
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Preface
The 28 chapters of this book present an overview of contemporary economic psychology in a manner suitable for the core text of a course at the intermediate or final-year level of a UK honours degree in psychology, or equivalent. The 50 chapter authors are internationally recognized experts in their fields of research. Our focus is on individual and household economic decision-making, ranging widely across financial matters such as borrowing and saving, and economic behaviour such as trading and entrepreneurial activity. Part 1 presents an introduction to the field and to important theoretical developments in economic decision theory. Next, in Part 2, material to equip the student to understand a range of contemporary research methods and to undertake an empirical study in economic psychology is presented. Following this, Parts 3–5 deal with central aspects of economic psychology in everyday life. In addi-tion to reviewing current knowledge on each topic, they also consider its practical and policy implications for supporting economic decision-making. Finally, we consider two broader perspectives. Part 6 presents a life-span developmental approach, from childhood to old age; and Part 7 deals with important societal issues such as charitable giving and pro-environmental behaviour. There is growing interest in both economic psychology and behavioural economics; graduate students and researchers in both areas will find the book useful and insightful.
A course in economic psychology was first introduced in a European university by Karl-Erik Wärneryd at Stockholm University in 1957, assisted by Folke Ölander who subsequently moved to Denmark to teach the subject at Aarhus University. Later, in 1972, Gery van Veldhoven and Fred van Raaij developed economic psychology courses at Tilburg in The Netherlands, and the field began to slowly spread across the continent.
At the same time, researchers were investigating economic behaviour, though with little communication with each other. For example, Reynaud and Paul Albou in Strasbourg, France, and Hermann Brandstäetter in Augsburg, Austria, were developing research centres. This somewhat scattered scenario was to change in 1976, when a group of twelve economic psychologists gathered in Tilburg to discuss their findings and experience in the area, in an informal setting (a pizza parlour), that would, nevertheless, have important consequences: this would be the first colloquium of a long series of annual conferences that began to gather researchers not only from Europe, but other parts of the world as well. This organization is today known as the International Association for Research in Economic Psychology (IAREP), created in 1982. Just before that, in 1981, the Journal of Economic Psychology was founded; 2016 saw the 53rd volume, with six parts a year, and growing visibility and impact.
A round-table on the history of economic psychology took place at the IAREP Conference in Prague, the Czech Republic, in 2005, when experienced pioneer researchers in the area (Karl-Erik Wärneryd, Folke Ölander, Fred van Raaij and Stephen Lea) discussed the recent history of the discipline, which allowed data about this period to be gathered (Ferreira, 2007). In 2016, the 41st IAREP-SABE Conference took take place, in Wageningen, The Netherlands (SABE is the Society for the Advancement of Behavioral Economics, also created in 1982).
Finally, we should mention two important textbooks that contributed to the establishment of contemporary economic psychology (1) The Individual in the Economy: A Survey of Economic Psychology (1987) by Stephen Lea, Roger Tarpy and Paul Webley; and (2) the Handbook of Economic Psychology (1988) edited by Fred van Raaij, Gery van Veldhoven and Karl-Erik Wärneryd. The present volume aims to document developments in the field over the following decades and to introduce a new generation of readers to this fascinating area of psychology.
References
Ferreira, V. R. M. (2007). Psicologia Econômica: origens, modelos, propostas [Economic psychology: origins, models, proposals]. Doctoral thesis, Social Psychology Graduate: Studies Program, PUC-SP, São Paulo.
Lea, S., Tarpy, R., & Webley, P. (1987).
The individual in the economy: A survey of economic psychology
. Cambridge: Cambridge University Press.
van Raaij, F., van Veldhoven. G., & Wärneryd, K.-E. (Eds.). (1988)
Handbook of economic psychology
. New York: Springer.
Notes on Contributors
Gerrit Antonides is a Professor Emeritus of Economics of Consumers and Households at Wageningen University, The Netherlands. He obtained his PhD at Erasmus University, Rotterdam, in 1988 and has published in the areas of behavioural economics, economic psychology, and consumer behaviour. He has been an editor of the Journal of Economic Psychology, has (co-)authored several textbooks in consumer behaviour and economic psychology and is past President of the Society for the Advancement of Behavioural Economics (SABE). The behavioural aspects of consumer decision-making concerning issues of finance, household, environment and health, are an important part of his current research activities.
John K. Ashton is a Professor of Banking at Bangor University, UK, Editor of the Journal of Financial Regulation and Compliance and Academic Director of the Chartered Banker MBA at Bangor Business School. John has previously worked at the University of Leeds, the University of East Anglia and Bournemouth University, publishing numerous academic articles on pricing, regulation, monetary policy transmission and competition within retail banking markets. These academic outputs have been informed by a career teaching banking through universities and with appropriate professional bodies.
Jan Willem Bolderdijk received his PhD in Environmental Psychology in 2011 from the University of Groningen The Netherlands. He is fascinated by people’s tendency to make ‘irrational’ decisions, and frequently employs field experiments to explore new research ideas in realistic consumer settings. He currently works as an Assistant Professor at the Department of Marketing, University of Groningen, where he studies ways to promote sustainable consumer behaviour. He was awarded a ‘Veni’ career grant by the Dutch National Research Council (NWO) in 2014.
Nicolao Bonini is full Professor of Psychology of Consumer Choice in the Department of Economics and Management, at the University of Trento, Italy. His research training was at the University of Padua, from where he graduated in 1987. Then he was awarded a PhD on experimental psychology at the University of Trieste. Subsequently, he has held various research and lecturing posts in psychology, including Professor of Psychology at the University of Trento from 1999 to the present. He has undertaken psychological research using a range of methods, and has published widely on economic psychology and decision research. He has served the European Association of Decision Making as President, President-Elect, and a member of the steering board.
Christopher J. Boyce is currently a Research Fellow at Stirling Management School, the University of Stirling, UK. He graduated from the University of Surrey with a BSc in Economics in 2005 and then moved to the University of Warwick to complete an MSc in Economics. At Warwick, he completed a PhD in Psychology in 2009 on the topic of subjective well-being. After his PhD he held positions as a Research Fellow at the Paris School of Economics, the University of Manchester, and at the Institute of Advanced Studies. His current research crosses the boundaries of economics and psychology, and he tries to unite ideas from both disciplines. Specifically he is concerned with understanding how an individual’s health and happiness are influenced by the world around them.
Wändi Bruine de Bruin holds a University Leadership Chair in Behavioural Decision Making at the Leeds University Business School, UK, where she co-directs the Centre for Decision Research. She is also affiliated with Carnegie Mellon University, the University of Southern California, and the RAND Corporation. She holds a PhD in behavioural decision-making and psychology and an MSc in behavioural decision theory from Carnegie Mellon University, as well as an MSc in cognitive psychology and a BSc in psychology from the Free University Amsterdam. Her research focuses on judgement and decision-making, risk perception and communication, as well individual differences in decision-making competence across the life-span.
W. Ray Crozier is Honorary Professor in the School of Social Sciences, Cardiff University, UK. Previously, he has held chairs in psychology in Cardiff University and the University of East Anglia. He received research training at the University of Keele, where his PhD was on risky decision-making. He has published widely on topics in social and educational psychology including the emotions, shyness in childhood and adulthood, and artistic creativity. He is a Fellow of the British Psychological Society.
Michael Daly is a Reader affiliated to the Behavioural Science Centre of the Stirling Management School, the University of Stirling, UK. Previously, he has been a Fulbright Scholar visiting Florida State University, a lecturer in the University of Manchester School of Psychology, and a CARA Fellow at the University of Aberdeen Institute of Applied Health Sciences, funded by the Marie Curie Programme. His research focuses on how ideas shaped at the interface of psychology and economics can be investigated and applied to policy. Michael has published a broad set of papers on human health and well-being, how they are interrelated, and how they are determined by psychological traits (e.g., self-control) and economic circumstances (e.g., unemployment).
Liam Delaney is SIRE Professor of Economics and Co-director of the Behavioural Science Centre in the Stirling Management School, the University of Stirling, UK,. He is also PhD Director of the Scottish Graduate Programme in Economics, and Director of Research and Deputy Head of the Stirling Management School. He is a Marie Curie Career Integration Fellow and an investigator with the ESRC-funded Scottish Centre on Constitutional Change. In 2009, he received the Statistical and Social Inquiry Society of Ireland’s Barrington Medal. He was a 2011 Fulbright Fellow at Princeton University. His main research interests involve using novel measures of well-being and time preferences to shed light on long-running questions about the determinants of health and well-being.
Fabio Del Missier is senior research scientist and tenured Assistant Professor in the Department of Life Sciences at the University of Trieste, Italy, and an affiliated research scientist at Stockholm University, in the Department of Psychology. After graduating with a PhD in Psychology from the University of Trieste, he was a post-doc researcher at the University of Trento. His research focuses on memory and cognitive underpinnings of decision-making, basic memory and control processes, and decision-making competence across the adult life-span. His work has been published in the main cognitive psychology, neuropsychology, and decision-making journals.
Artur Domurat is an Assistant Professor in the Faculty of Psychology, at the University of Warsaw, Poland, where he graduated in 2004 with a PhD on psychological methods. His background lies both in economics (Warsaw School of Economics, M.Sc., 1998) and psychology (University of Warsaw, M.A., 2000). He has also been collaborating with the Centre for Economic Psychology and Decision Sciences at Kozminski University since 2001. His interdisciplinary research interests encompass studies in judgement and decision-making (risk-taking, heuristics and Bayesian reasoning) and economic psychology (psychology of entrepreneurship and investing).
Mark Egan is a PhD student at the Behavioural Science Centre, the Stirling Management School, the University of Stirling, UK. His research draws on large, longitudinal data-sets to examine how individual psychological differences in childhood and adolescence predict future economic and health outcomes. Prior to his PhD, he graduated from the MSc Human Decision Science programme at Maastricht University.
Antony Elliott is Chief Executive of the Fairbanking Foundation. He has a degree in Banking and International Finance from City University, London, and a Master’s degree in Operational Research from Imperial College, London. In 2014, he was awarded an OBE for services to bank customers. Antony has been actively involved in researching the field of financial well-being since 2004 and has published a large number of reports in the field. He was lead author for the Money Advice Service report, Transforming Financial Behaviour (2010), examining the role of behavioural economics in improving financial capability. He founded the Fairbanking Foundation in 2008, which conducts research, provides advice and is the certification body for the Fairbanking Mark.
Vera Rita de Mello Ferreira has a PhD in social psychology, and is a member of NEC, the Behavioural Studies Center at CVM (the Brazilian Securities Exchange Commission). She is an economic psychology lecturer at B3 Educacional, in São Paulo, and at other institutions in both São Paulo and other states, an independent consultant for organizations and policy-making (VERTICE PSI), in Brazil and abroad, and author of the first Brazilian books on economic psychology. She is the representative in Brazil of IAREP, and a former member of the Executive Committee of the International Confederation for the Advancement of Behavioral Economics and Economic Psychology (ICABEEP). Vera has been directly involved in the development of economic psychology in Brazil since 1994.
Bruno S. Frey is Professor of Economics at the University of Zurich, Switzerland, and Research Director of CREMA – Center for Research in Economics, Management and the Arts, Zurich, Switzerland. He was Distinguished Professor of Behavioural Science at the Warwick Business School at the University of Warwick, UK, from 2010 to 2013, Professor of Public Finance at the University of Constance, Germany, from 1970 to 1977 and Professor of Economics at the University of Zurich, Switzerland, from 1977 to 2010. He seeks to extend economics beyond standard neo-classics by including insights from other disciplines, including political science, psychology and sociology. According to the Institute for Scientific Information, he belongs to the group of ‘the most highly cited Researchers’.
Jana Gallus is an Assistant Professor at UCLA’s Anderson School of Management, USA. She holds a PhD in Economics from the University of Zurich. Switzerland. As a scholarship holder of the German National Merit Foundation, she previously studied at the Institut d’études politiques de Paris (IEP Paris/Sciences Po) in France, the University of California at Santa Barbara (UCSB) in the United States, and the University of St Gallen (HSG) in Switzerland.
Amelie Gamble is an Associate Professor in the Department of Psychology, and is affiliated with the Centre for Finance, School of Business, Economics, and Law at the University of Gothenburg, Sweden. She graduated in 2005 in psychology from the University of Gothenburg. Her research interests are economic decision-making and well-being.
Tommy Gärling is Emeritus Professor of Psychology affiliated with the Department of Psychology and Centre for Finance at the School of Business, Economics, and Law at the University of Gothenburg, Sweden. He graduated with a PhD from Stockholm University in 1972 and held university positions at the Royal Institute of Technology in Stockholm and the University of Umeå before being appointed Professor of Psychology at the University of Gothenburg. He is a Fellow of the International Association of Applied Psychology and has conducted research and published extensively in environmental psychology, economic psychology and transportation psychology.
Agata Gasiorowska is an Associate Professor affiliated to the Centre for Research in Economic Behaviour, SWPS University of Social Sciences and Humanities, Poland. She received her PhD in management from Wroclaw University of Technology in 2003 and her PhD in psychology from the University of Wroclaw in 2009. She has undertaken research on the psychology of money and consumer behaviour, and is currently the Polish representative for the International Association for Research in Economic Psychology, and the President of Polish Academic Association for Economic Psychology.
Anouk Griffioen received her MSc degree in Social Psychology at the VU University, Amsterdam. She is now a Climate-KIC PhD student at Wageningen University, The Netherlands. Her project, ‘Saving energy when others pay the bill: A field experimental approach to behavioural aspects of energy conservation’ aims to improve knowledge about stimulating pro-environmental behaviour when financial incentives are absent. An additional goal is to translate these findings into functioning interventions in practice. To accomplish this, she has collaborated closely with the Student Hotel, a hotel chain which provides a ‘living lab’ by allowing experimental test interventions for energy conservation.
Michel Handgraaf received his PhD in social psychology from Leiden University. Since 2011, he has been an Associate Professor at Wageningen University, The Netherlands. Most of his research using (field) experimental methods and surveys can be described as ‘behavioural economics’. It mainly deals with differences between what rational economic theories would predict and the psychology behind deviations from such predictions. Besides research on fairness and ethics, his current research focuses on decisions in the environmental domain. These decisions typically feature uncertainty, temporal trade-offs and social trade-offs.
Nigel Harvey is a Professor of Judgement and Decision Research, University College London, UK, and Visiting Fellow in the Department of Statistics at the London School of Economics and Political Science. He is a past President of the European Association for Decision Making and is co-editor of the Blackwell Handbook of Judgment and Decision Making. He works on judgement in forecasting, advice-taking, and the calibration of subjective probabilities.
Bill Hebenton teaches and researches at the Centre for Criminology and Criminal Justice in the School of Law and is a Research Associate of the Manchester Centre for Chinese Studies, Manchester University, UK. He has published widely on comparative criminology and criminal justice, and has a particular research interest in China and Greater China. He is chief editor of the Palgrave Macmillan book series ‘Palgrave Advances in Criminology and Criminal Justice in Asia’. His other research interests can be categorized broadly around three themes: demystifying the ‘smoke and mirrors’ of contemporary crime and criminal justice, including sexual crime, sentencing and ‘enforcement’ of judicial penalties; applications of crime science; and situational versus dispositional explanation and implications for criminology.
Martin Hedesström is an Associate Professor of Psychology, University of Gothenburg, Sweden, and is affiliated with the Centre for Finance at the same university. His research is mainly experimental and often related to savings and investments in the stock market. Current research interests also include behavioural spillover from moral decisions and choice architecture.
Erik Hoelzl is Professor of Economic and Social Psychology at the University of Cologne, Germany. He obtained his PhD in 2000, and his Habilitation in 2005, from the University of Vienna, Austria. He moved to the University of Cologne in 2010. His major research interests are decisions about the use of money, ranging from consumer spending over credit to taxation. He has published in international, peer-reviewed journals on economic and applied psychology. He was Editor-in-Chief of the Journal of Economic Psychology (jointly with Erich Kirchler). His interests also include the development of the scientific method, and meta-research. He is member of several scientific societies and on the editorial board of several scientific journals.
Erich Kirchler is Professor of Economic Psychology at the University of Vienna, Austria. He obtained his PhD in 1973, from the University of Vienna and his Habilitation in 1989, from the University of Linz, Austria. His first academic position was at the University of Linz. He moved to the University of Vienna in 1992. His major research interests are household financial decision-making and tax behaviour. He is an advisor at the Austrian Science Fund (FWF), was President of the International Association for Research in Economic Psychology (IAREP) and the Austrian Psychological Society (ÖGPs). He was Editor-in-Chief of the Journal of Economic Psychology and past-president of Division 9 (Economic Psychology) of the IAAP (International Association of Applied Psychology).
Tehila Kogut is an Associate Professor at the Department of Education and the Center for Decision Making and Economic Psychology at Ben-Gurion University in Israel. She received her PhD from the Hebrew University. Her research is in the field of social psychology and decision making, focusing on pro-social decisions among children and adults.
Zeev Krill is a senior researcher in the Chief Economist Department, Ministry of Finance, in Israel. His interests include macroeconomics and fiscal policy, lay understanding of economics and nudge economics. Before joining the ministry, he worked as a consultant and as a lecturer in Economics at Ben-Gurion University, from where he also received a BA in Economics and Psychology and an MA in Economics.
Anton Kühberger is Professor of Psychology working at the Department of Psychology, and is also a member of the Centre for Cognitive Neuroscience at the University of Salzburg, Austria. He has carried out extensive research into judgement and decision-making, especially in the context of risk.
David Leiser is Full Professor of Economic and Social Psychology in the Department of Psychology, Ben-Gurion University, Israel. He was educated in Mathematics (Hebrew University of Jerusalem BSc, 1972), Adult Education (University of Illinois at Urbana Champaign, MSc, 1973), and Psychology (Université de Genève, Switzerland, PhD, 1978). He was the founder and director (2003–2013) of the Center for Decision Making and Economic Psychology, and Co-Founder of the Center for Research on Pension, Insurance and Financial Literacy (2014– ), both at Ben-Gurion University. He served as President (2010–2014) of IAREP and currently is President (2014– ) of the Economic Psychology Division of the International Association for Applied Psychology. His current work centres on the analysis of lay understanding, in particular in the economic domain.
Cäzilia Loibl, Ph.D., CFP¯, is an Associate Professor in the Department of Human Sciences, Ohio State University Columbus, Ohio, USA, and held an appointment as Marie Curie Fellow at the Centre for Decision Research at Leeds University Business School, UK (2014–2016). Her research focuses on consumer financial decision-making.
Sandie McHugh is an Associate Researcher in Psychology, at the University of Bolton, UK. She originally studied social and economic history at the University of Manchester and became interested in applied psychology during a career in the civil service and as a member of the GB Women’s Target Sports National Squad. She has been involved in a series of research projects in the Household Financial Decision Making group of the Psychology Department and is the co-author of published papers. She is a representative on the University of Bolton’s Centre for Worktown Studies and has published on happiness research conducted in the town of Bolton.
Simon McNair is currently a Leverhulme Early Career Research Fellow in the Centre for Decision Research, Leeds University Business School, UK. He was awarded his PhD in 2013 by Queen’s University, Belfast, for research on the cognitive psychology of Bayesian reasoning. Simon’s interest in economic psychology developed as a post-doc, when he conducted research for Grant Thornton UK LLP, a leading consumer financial insolvency firm. More recently, Simon has conducted research in the area of financial capability (with partners Suitable Strategies), and from 2016 will begin a three-year project in partnership with the Citizens Advice Bureau to develop more effective financial support provision.
Ellen K. Nyhus is Professor of Marketing in the Department of Management, School of Business and Law, the University of Agder, Norway. She is also a senior researcher at the Department of Innovation at Agderforskning AS. She has held former positions at the Norwegian School of Economics and Business Administration, Bergen, Norway, and at the Centre for Economic Research in Tilburg, The Netherlands. Ellen is past President of IAREP and an editorial board member of the Journal of Economic Psychology. She is conducting research in the field of consumer behaviour, behavioural economics, labour market behaviour, socialization processes and travel and tourism.
Annette Otto is a researcher in the field of economic and developmental psychology and is currently teaching at the Johannes Gutenberg University, Mainz, Germany. She earned her PhD from the University of Exeter in 2009 on the economic psychology of adolescent saving. Her research focuses on the development of saving behaviour within the social context of the family and adolescent learning within the family and school context. She is a member of the academic research group of ‘Child and Youth Finance International’. Her work has been published in the Journal of Economic Psychology, the Economics of Education Review, and the Journal of Consumer Affairs.
Davide Pietroni is a senior research scientist, a tenured Assistant Professor in the Department of Business Studies at the University d’Annunzio of Chieti-Pescara, Italy, and a trainer in the area of personal and organizational development. After attaining his PhD in cognitive science at the University of Padua, he consolidated a research partnership with the Social Psychology Department at the University of Amsterdam. His research focuses on conflict management and negotiation with an emphasis on the interpersonal effects of emotions in bias mitigation and coordination; most recently his research is centred on the use of nudging to promote wealth and well-being. His work has been published in the leading social psychology journals and he has authored four books on negotiation.
Rob Ranyard is a freelance researcher and Visiting Professor affiliated to the Centre for Decision Research, University of Leeds, UK. His research training was at the University of Stirling, from where he graduated in 1972 with a PhD on the psychology of decision-making. Subsequently he has held various research and lecturing posts in psychology, including Professor of Psychology at the University of Bolton from 2001 to 2014. He has undertaken psychological research using a range of methods, has published widely on economic psychology and decision research, and is currently the UK representative for the International Association for Research in Economic Psychology. He is an Associate Fellow of the British Psychological Society.
Daniel Read is Professor of Behavioural Science at Warwick Business School University of Warwick, UK. He has previously held positions at the University of Leeds, the London School of Economics and Durham Business School, and has held lengthy visiting positions at Carnegie Mellon University, Pittsburgh, USA, the University of Rotterdam, and the Yale School of Management. He has published widely in prestigious journals including Management Science, Organizational Behavior and Human Decision Process, Psychological Review, and the Journal of Experimental Psychology. Most of Daniel’s research has been in the area of intertemporal choice, including many papers with Marc Scholten. He is also interested in Bayesian inference, choice heuristics, strategic thinking, and applications of behavioural science to social problems.
Ilana Ritov is a Professor of Psychology at the School of Education in the Hebrew University of Jerusalem, Israel. She is the Director of the Center for Empirical Studies of Decision Making and the Law at the Hebrew University. Her research area is the psychology of judgement and decision-making, with a special focus on choice in social contexts. The issues she studies include, among others, determinants of altruistic behaviour, the role of social comparison, and the distinction between abstract choices and those involving identified individuals.
Marc Scholten has been, since 2013, Associate Professor with Habilitation at the Universidade Europeia Lisbon, Portugal. In 1993, he took his PhD in Economic Psychology at Tilburg University. Since 2002, his research has expanded on the simple, but not innocuous, premise that people make direct comparisons between available options in reaching a decision. This was the premise underlying his journal articles on a model of decisional conflict (Journal of Experimental Psychology: General, 2006) and on a later model of intertemporal choice (Psychological Review, 2010). Most of his subsequent publications have been an orchestrated effort to cement this perspective on decision-making, both theoretically and methodologically. Recently, his research has shifted attention from choices between options with single consequences to choices between options with multiple consequences.
Michael Schulte-Mecklenbeck is a lecturer in Consumer Behaviour, at the University of Bern, Switzerland, and an Adjunct Researcher at the Max Planck Institute for Human Development, Berlin. He received his PhD from the University of Fribourg, Switzerland, in 2005, and worked in industrial consumer research at a large food company and in different academic institutions in Europe and the United States. His research focuses on the cognitive processes in decision-making, consumer behaviour and food choice. Furthermore, he is interested in research methods to capture and understand human data acquisition.
Joyce Serido is an Associate Professor in Family Social Science at the University of Minnesota-Twin Cities, USA. She holds an MBA in finance from Seton Hall University and an MS and PhD in family studies and human development from the University of Arizona. Her research focuses on financial behaviour, specifically, the intersection of family processes and personal well-being of youth and young adults. As principal investigator for the Arizona Pathways to Life Success for University Students (APLUS) research initiative, she leads a multi-university team in the first longitudinal, multidisciplinary study of young adults’ financial behaviours. Dr Serido currently serves on the editorial boards for the Journal of Consumer Affairs and Journal of Financial Counseling and Planning.
Stefanie J. Sonnenberg is a Senior Lecturer in Psychology at the University of Portsmouth, UK. She completed an MSc in Economic Psychology at the University of Exeter in 1998 and a PhD in Social Psychology at the University of St Andrews in 2004. Stefanie’s research interests span a range of topics within social and economic psychology, including the social psychology of money and household money management. Her specific interests in these broad domains concern the ways in which we conceptualize the ‘self’ and the role identity plays in understanding socio-economic processes.
John Th⊘gersen is Professor of Economic Psychology in the School of Business and Social Sciences at Aarhus University, Denmark, where he heads the Marketing and Sustainability research group. He received his MSc and PhD from Aalborg University, Denmark, in 1980 and 1985, and his advanced doctoral degree, Dr. Merc., from Aarhus School of Business in 1999. His research focus is on sustainable consumption in a broad sense, including sustainable lifestyles and ‘spillover’, social norms, values, intergenerational transfer, eco-labelling, energy consumption, travel mode choice, and organic food. He is editor of the Journal of Consumer Policy.
Tadeusz Tyszka is Head of the Centre for Economic Psychology and Decision Sciences, Kozminski University, Warsaw, Poland. He has been involved in research on human judgement and decision-making for many years, including: decision-making in situations of conflicts of interests; decision-making among multi-attribute alternatives; and risk perception. Results of these studies have been published in international journals. His group also edits its own multi-disciplinary journal in Polish/English – Decyzje/Decisions. He has been President of IAREP (1992–1994) and President of the Economic Psychology Division in the International Association of Applied Psychology (2006–2010).
Ivo Vlaev is Professor of Behavioural Science at Warwick Business School, University of Warwick, UK, and received a DPhil (PhD) in Experimental Psychology from the University of Oxford. His research is to advance understanding of human decision-making (behavioural economics) and behaviour change. It is a convergence of psychology, neuroscience and economics, which achieves results that none of the disciplines can achieve alone. Ivo is also a co-author of the UK Cabinet Office MINDSPACE report, advising policy-makers on how to effectively use behavioural insights.
Kathleen Vohs is Land O’Lakes Chair in Marketing at the Carlson School of Management, Minneapolis, USA, and has an extensive background in psychology. She applies her understanding of psychological science to business issues in order to advance new areas of marketing research. Her research specialties include self-regulation; self-esteem; the psychology of money; meaningfulness in life, and heterosexual sexual relations as predicted by economic principles. She has authored more than 160 scholarly publications and served as the editor of eight books. She has written invited articles for Scientific American, the New York Times, and Science.
Alex M. Wood is Professor and Director of the Behavioural Science Centre, the Stirling Management School, the University of Stirling, UK. He was possibly the youngest full professor in UK history, gaining his first Chair in 2012 when aged 29. After his PhD in Psychology at the University of Warwick in 2008, he was Lecturer then Senior Lecturer at the University of Manchester, which also awarded him an honorary Chair in 2013. His 100 papers related to well-being have been published in leading journals across psychology, medicine, and economics. He is an expert on psychometrics as he believes that evaluating the quality of the measurement of well-being is integral to the validity of the subsequent scientific literature. He balances work with travel, philosophy, reading, wild swimming, and hanging out with his Scottish musician friends.
Juemin Xu is currently a PhD student in the Department of Experimental Psychology at University College London, UK. Her research interests include gambling and financial decision-making. She has studied online gambling and risk taking in daily economic activities.
Tomasz Zaleskiewicz is Professor of Psychology at the SWPS University of Social Sciences and Humanities in Wroclaw, Poland, and graduated in 1998 with a PhD in psychology. His research focuses on different aspects of economic psychology (mainly psychology of money, saving, behavioural finance) and decision-making under risk. His work has been published in international journals and handbooks on economic psychology, decision sciences and social psychology. He is currently Honorary Secretary of IAREP, President Elect of the Division of Economic Psychology, International Association of Applied Psychology, and Associate Editor of the Journal of Economic Psychology.
Acknowledgements
Support from the following colleagues is much appreciated for their careful and insightful reviews of, in some cases, several chapters: Gerrit Antonides, Wändi Bruine de Bruin, W. Ray Crozier, Michael Daly, Fabio Del Missier, Mark Egan, Tommy Gärling, Nigel Harvey, Erik Hoelzl, Bernadette Kamleitner, Erich Kirchler, Anton Kühberger, Cäzilia Loibl, Simon McNair, Ellen K. Nyhus, Barbara Summers, Karl-Erik Wärneryd, Mathew White and Tomasz Zaleskiewicz.
PART 1Fundamentals
1 Introduction to Economic Psychology: The Science of Economic Mental Life and Behaviour
ROB RANYARD AND VERA RITA DE MELLO FERREIRA
CHAPTER OUTLINE
1.1 INTRODUCTION
1.2 THE EMERGENCE OF THE DISCIPLINE
1.2.1 From Adam Smith to George Katona
1.2.2 Economic Decision-Making
1.2.3 Behavioural Economics and Economic Psychology
1.3 RESEARCH METHODS
1.4 ECONOMIC MENTAL REPRESENTATIONS
1.5 FINANCIAL BEHAVIOUR AND ECONOMIC ACTIVITY
1.6 LIFE-SPAN PERSPECTIVES
1.7 ECONOMIC PSYCHOLOGY AND SOCIETY
1.8 SUMMARY
LEARNING OUTCOMES
BY THE END OF THIS CHAPTER YOU SHOULD BE ABLE TO:
Understand and describe the nature, origins and scope of economic psychology.
Discuss the relationship between economic psychology and behavioural economics, and their perceived similarities and differences.
Give examples of a range of studies and findings from recent economic psychology research.
1.1 INTRODUCTION
Economic psychology has important contributions to make in a changing economic world in which individuals and households are expected to take more responsibility for their own economic well-being. Consider first that the international financial crisis of 2007–2008, and the subsequent Great Recession, were not predicted by mainstream economics. One reason, argued Paul Krugman, was that most economists had ‘turned a blind eye to the limits of human rationality’ (2009, p. 1). Economic psychology has an important contribution, then, to provide economics with a realistic and insightful understanding of human rationality in the economic domain. This extends to other psychological factors that may play a role in financial crises; our emotional tendencies, such as fears in the face of financial risk, and our social nature, including our tendency to compare ourselves with and to follow others (Gärling, Kirchler, Lewis, & Van Raaij, 2009). Consider, second, that both household and personal economic decision-making are becoming increasingly complex and have significant consequences for our quality of life and psychological well-being. Decisions about saving for a rainy day or for retirement, borrowing to improve today’s lifestyle, how to manage tax affairs or financial risks, how to make sense of advertisements for loans, savings and insurance, are all issues that economic psychology can contribute towards understanding and improving. Consider finally, that people’s thoughts and feelings about material possessions, money, prices, the economy and inflation are at the core of economic mental life, and that the psychology of such things is fascinating and worthy of study for its own sake.
Our description of economic psychology as the science of economic mental life and behaviour reflects a contemporary approach to psychology, conferring equal status on the twin endeavours of understanding mental life and understanding behaviour. As is well known, the history of psychology has been characterized as a series of paradigm shifts, or fundamental changes in perspective. For example, the early twentieth century saw a shift from introspectionism’s reliance on self-reports of mental activity to behaviourism, which eschewed such methods and concepts to focus on observable behaviour. This held sway until what became known as the cognitive revolution from the mid-1950s. Once again, evidence from self-reports of mental experience was deemed admissible and mental elements were accepted as the nuts and bolts of cognitive theory. One of the leading players in this development was George Miller (1962a) through his work, for example, on our capacity to process information. He wrote an inspiring introductory text which signalled psychology’s cognitive shift. He called it Psychology: The Science of Mental Life (Miller, 1962b), from which our description of economic psychology is derived. It should be noted that although our definition also encompasses behaviour, it signals a distinctive orientation from the burgeoning, related field of behavioural economics which primarily focuses on behavioural prediction.
Box 1.1 summarizes further defining characteristics of economic psychology. First, it is a branch of applied psychology, recognized as such by the International Association of Applied Psychology, in which both theory and application are central. This means that economic psychologists take seriously the responsibility of providing the basis for research-informed policies to support people’s economic well-being and the health of the economy. Second, it identifies an important characteristic of economic psychology famously broadcast in the influential textbook, The Individual in the Economy: A Survey of Economic Psychology, by Lea, Tarpy, and Webley (1987). It is the study of ‘how individuals affect the economy and how the economy affects individuals’ (p. 2). Consequently, it is an interdisciplinary endeavour, with increasingly fruitful collaborations with mainstream and behavioural economics and other biological and social sciences.
Box 1.1 Defining characteristics of economic psychology
The science of economic mental life and behaviour
A branch of applied psychology
The study of ‘how individuals affect the economy and how the economy affects individuals’ (Lea, Tarpy, & Webley, 1987, p. 2)
An interdisciplinary field of study
In Section 1.2, we describe the emergence of economic psychology as a discipline, including key developments in theories of economic decision-making, and we consider the relationship between behavioural economics and economic psychology. Following this, our introduction to the field reflects on the topics discussed in each part of the book, beginning with an outline of the main research methods that have been used (Part 2 of the book). We next discuss the various aspects of economic mental representations considered in Part 3. We then move on to aspects of personal and household financial decision-making and economic activity (covered in Parts 4 and 5). Finally, we introduce some of the economic-psychological issues related to life-span development and to society that are covered in Parts 6 and 7.1
