Economic Psychology

Description

Economic Psychology is the only up-to-date, English-language textbook that provides a comprehensive overview of theoretical topics in economic psychology and their relevance in applied fields. Written by two leading psychologists, the book looks at how people make decisions on the use of scarce resources, in particular money, from a psychological perspective. Starting with decision making and lay theories as basic building blocks of economic behaviour, the authors go on to explore three major markets where economic behaviour occurs as an interaction between individuals and companies or institutions - consumer markets, labour markets and financial markets - before considering the challenges of collective cooperation and economic prosperity. Featuring numerous applied examples throughout, each chapter also includes an overview, a summary, figures, key terms, student questions and suggestions for further reading. This introduction is an essential resource for advanced undergraduate and postgraduate courses on economic psychology, behavioural economics and social psychology. Contents List of Figures List of Tables Preface Acknowledgments 1 Economic Psychology: History and Application Overview Introduction 1.1 Markets 1.2 Economics and Psychology 1.3 Economic Psychology 1.4 Topic Areas within Economic Psychology Conclusion Summary Questions Further Reading 2 Decision-Making: Normative Models and Anomalies Overview Introduction 2.1 Decisions under Uncertainty 2.1.1 Certainty, Risk and Ambiguity 2.1.2 Classical Decision Theory 2.1.3 Economic Games 2.1.3.1 Ultimatum and Dictator Game 2.1.3.2 Prisoner’s Dilemma 2.2 Decision Anomalies 2.2.1 Information Processing 2.2.1.1 Problems in Information Processing 2.2.1.2 Information Processing Paths 2.2.2 Emotions 2.2.3 Time 2.2.3.1 Delayed Gratification 2.2.3.2 Time Preferences and Discounting 2.2.3.3 Distributed Choices: Melioration 2.2.3.4 Distorted Memories 2.2.4 Heuristics 2.2.4.1 Availability Heuristic 2.2.4.2 Representativeness Heuristic 2.2.4.3 Anchoring and Adjustment Heuristic 2.2.4.4 Affect Heuristic 2.2.4.5 Fast and Frugal Heuristics Conclusion Summary Questions Further Reading 3 Decision-Making: Descriptive Models and Choice Architecture Overview Introduction 3.1 Prospect Theory 3.1.1 Endowment Effect 3.1.2 Sunk Cost Effect 3.1.3 Mental Accounting and Hedonic Editing 3.2 Descriptive Decision Models 3.2.1 Individual Decisions 3.2.2 Decisions in Organisations and in Politics 3.3 Designing Decision Architectures 3.3.1 Logic of Successful Decisions 3.3.2 Nudging towards Desirable Behaviour Conclusion Summary Questions Further Reading 4 Lay Theories: Knowledge and Money Overview Introduction 4.1 Lay Theories 4.1.1 Theory of Social Representations 4.1.2 Social Representations about the Economic System 4.1.3 Social Representations about Poverty and Unemployment 4.1.4 Social Representations about Money and Currency 4.2 Economic Knowledge 4.2.1 Development of Economic Understanding 4.2.2 Development of Economic Motives 4.2.3 Development of Economic Behaviour 4.2.4 Financial Literacy 4.3 Money 4.3.1 Subjective Meanings of Money 4.3.2 Subjective Value of Money 4.3.3 Currency Reforms and Currency Changeovers 4.3.3.1 Lay Beliefs and Representations about a Currency Changeover 4.3.3.2 New Money and New Prices 4.3.4 Subjective Interpretation of Prices 4.3.4.1 Price and Quality 4.3.4.2 Price Perception Conclusion Summary Questions Further Reading 5 Consumer Markets: Purchasing and Credit Use Overview Introduction 5.1 Purchase Decisions by Individual Consumers 5.1.1 Typologies of Purchase Decisions 5.1.2 Stage and Process Models of Purchase Decisions 5.1.3 Goals and Motives in Purchase Decisions 5.2 Purchase Decisions in Private Households 5.2.1 Models for Describing Purchase Decisions in the Household 5.2.2 Methods of Studying Purchase Decisions in the Household 5.2.3 Influence Distribution between Spouses 5.2.4 Process Analysis of Decisions in the Household 5.2.5 Outcomes of Decisions: Fairness and Satisfaction 5.3 Credit Decisions of Individuals and Households 5.3.1 Credit Use as a Process 5.3.2 Mental Accounting in Credit Use Conclusion Summary Questions Further Reading 6 Labour Markets: Wages and Entrepreneurship Overview Introduction 6.1 Supply and Demand for Labour 6.1.1 Experimental Economics and Game Theory 6.1.2 Labour Market Experiments 6.1.3 Reciprocity on the Labour Market 6.2 Wages 6.2.1 Wages and Motivation 6.2.2 Wage Fairness 6.3 Entrepreneurship 6.3.1 Characteristics of Entrepreneurs 6.3.2 Founding a Company 6.3.3 Gender Differences in Entrepreneurship Conclusion Summary Questions Further Reading 7 Financial Markets: Risk and Investment Overview Introduction 7.1 The Exchange 7.1.1 Economic Perspectives on the Exchange 7.1.2 Psychological Perspectives on the Exchange 7.1.3 Investors’ Mistakes 7.2 Over- and Under-reactions to News 7.3 Disposition Effect 7.4 Heuristics 7.4.1 Representativeness Heuristic and Anchoring and Adjustment Heuristic 7.4.2 Recognition Heuristic 7.4.3 Heuristic Risk Diversification 7.5 Emotions 7.6 Social Influences 7.7 Trust in Financial Institutions Conclusion Summary Questions Further Reading 8 Collective Cooperation: Shadow Economy and Tax Paying Overview Introduction 8.1 In the Shadow of the Official Economy 8.2 Taxes and Contributions 8.3 Attitudes towards Taxes 8.4 Tax Behaviour: Definitions, Relevant Actors and Research Methods 8.4.1 Definitions of Tax Behaviour 8.4.2 Actors in the Field 8.4.3 Research Methods 8.5 Paradigms of Tax Behaviour Research 8.5.1 Decisions under Risk 8.5.2 The Social Contribution Dilemma 8.5.3 Differences among Taxpayers 8.5.4 The ‘Psychological Contract’ 8.5.5 Interaction Climate 8.6 Synergistic versus Antagonistic Climates: Recommended Practice Conclusion Summary Questions Further Reading 9 Collective Production: Work and Unemployment Overview Introduction 9.1 Work 9.1.1 Historical Changes in the Meaning of Work 9.1.2 The Structure of Work 9.1.3 Work and Leisure 9.2 Unemployment 9.2.1 Psychosocial Consequences of Unemployment 9.2.2 Differential Impact of Unemployment 9.2.2.1 Length of Unemployment 9.2.2.2 Subjective Importance of Work 9.2.2.3 Subjective Causes of Unemployment 9.2.2.4 Personality Characteristics 9.2.2.5 Socio-demographic Characteristics 9.2.2.6 Personal Activities 9.2.2.7 Experience with Unemployment 9.2.2.8 Social, Emotional and Informational Support 9.2.3 Determinants of Re-employment Conclusion Summary Questions Further Reading 10 Collective Prosperity: Wealth and Happiness Overview Introduction 10.1 Life Satisfaction 10.2 Definitions of Well-being, Happiness, Satisfaction and Quality of Life 10.3 Measuring Satisfaction 10.4 National and Subjective Life Satisfaction 10.5 Life Satisfaction and Gross Domestic Product Conclusion Summary Questions Further Reading Key Terms References Index