Economic Psychology
Economic Psychology
The field of economic psychology explores how economics impinges on the psychology of both individuals and groups, as well as how people both individually and collectively affect the economy. This transactional interplay between society at both the micro level and the more macro level of sociocultural institutions suggests that traffic between the two is not just possible but should be welcomed as a new field of study. The study of economic psychology originated in the late nineteenth century, with contributions from the French social scientist Gabriel Tarde and the American sociologist Thorstein Veblen.
The early ambitions of individuals like Tarde and Veblen to challenge the very foundations of economics have become more modest, and one of the legacies of their critique of economics has been the establishment of psychological considerations as important in economic theory and research. The field of economic psychology is populated by a small but vigorous intellectual community in its own right. The assumptions of rationality that underpin “homo economicus” have been effectively challenged, and the cognitive biases that influence decision-making and are part of human nature are now well known in all branches of social science.
Today, marketing students are taught about the social-emotional meaning of brands and how consumption practices are driven by considerations of social identity. The economist Richard Thaler points out that money, which is said by economists to be “fungible” (i.e., one sort of money is equivalent to any other), is in fact subject to mental accounting, meaning that money is viewed differently in different contexts. For example, money received as regular income is put in a different category than money from a windfall. Fungibility is not just a simplifying assumption. It does not do justice to the ways people manage their economic affairs in the real world. People have a concept of money that is situated and context-dependent.
Economic psychology is also interested in economic behavior in different cultural and historical contexts. So economic socialization, or how children learn the ways of their own economic world, has become a thriving part of economic psychology. The developmental changes that occur as children grow up mean that any theory of their economic decision-making is inevitably dependent on their level of psychological development. In household economics, economic psychologists have been exploring money management within the family. The psychologist Carole Burgoyne has argued that the styles that families and couples adopt to negotiate their finances can reflect deep-rooted tensions and reveal significant aspects of their relationships that would be otherwise difficult to access.
There are other areas of research and scholarship apart from economics and psychology that impinge on and influence economic psychology. Behavioral economics, for example, attempts to blend together economics and psychology, though in the main it is limited to the examination of psychological aspects of decision-making and the improvement of economics by placing it on a more realistic psychological foundation. Economic sociology, on the other hand, is firmly rooted in the sociological approach to the study of society. Here, the concepts and epistemology of sociological enquiry are applied to economic institutions. The field of economic psychology will remain valid and important as long as the cross-fertilization between economic and psychological theories and practices is mutually respected, and as long as there is a will to synthesize from debates and disputes.
SEE ALSO Child Development; Choice in Economics; Choice in Psychology; Conspicuous Consumption; Economics, Behavioral; Happiness; Money; Permanent Income Hypothesis; Relative Income Hypothesis; Sociology; Sociology, Economic
BIBLIOGRAPHY
Earl, Peter E., and Simon Kemp, eds. 1999. The Elgar Companion to Consumer Research and Economic Psychology. Cheltenham, U.K.: Edward Elgar.
Webley, Paul, et al., eds. 2001. The Economic Psychology of Everyday Life. Hove, U.K.: Psychology Press.
Brian Young