The purpose of this book is to give an introduction to economic psychology.We are confident that the book will stimulate further interest in an emerging interdisciplinary field of research and application.
Economic psychology builds bridges between the disciplines of economics and psychology. Based on their common research focus on human behaviour, both economists and psychologists early on showed an interest in each other's fields. However, both disciplines developed their own ‘languages’, their specific research paradigms and methodological toolboxes, hence conducting separate research on similar topics. In the past decades, economic psychology has gained significant momentum, especially with the recognition of the research by Daniel Kahneman and Amos Tversky by the Nobel Prize Committee in 2002. At the latest since then, research in economic psychology and behavioural economics has significantly increased. It has gained visibility and relevance both in scientific discussions and in the applied fields. Specifically, economic psychology has been recognised in institutions regulating human behaviour, in applied economics, law and politics.We present an introduction to the theoretical topics of economic psychology and their relevance in applied fields.
We cover questions about how people decide over the use of scarce resources, in particular money, from a psychological perspective. After giving an overview of the field, we start out with three chapters discussing the basic building blocks of economic behaviour: decision-making from a normative and a descriptive perspective as well as lay theories.We then move on to three chapters addressing the major markets on which economic behaviour occurs as an interaction between individuals and companies or institutions: consumer markets, labour markets and financial markets. We close with three chapters focusing on society-level topics: collective cooperation, collective production and collective prosperity.
In Chapter 1, we present economic and psychological approaches towards the study of human behaviour. We also give an overview of the history and the current fields of economic psychology that we use as the guiding structure of this book.
In Chapter 2, we present normative decision-making theories, starting out with classical decision theory and empirical studies on its predictions.We give an overview on decision anomalies that arise from information processing, emotions, time and heuristics.
In Chapter 3, we present descriptive decision-making theories. First, prospect theory as a highly influential approach that can explain several systematic deviations from rationality in people's decisions is addressed.