Zusammenfassung
Consumer and Economic Psychology Articles summary
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Summary of week 1-6 articles.
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Economic and Consumer Psychology article notesChanika Kemerink
Week 1 - Introduction
● Defining Characteristics of Economic Psychology
1. The science of economic mental life and behaviour
2. A branch of applied psychology
3. The study of ‘how individuals affect the economy and how the economy affects
individuals’ (Lea et al, 1987)
4. An interdisciplinary field of study
● The Emergence of the Discipline
= Adam Smith: published The Theory of Moral Sentiments, considered by some to be
the starting point for economic psychology. He explored the concept of self-love and
the importance of taking other’s roles, as in the social interaction necessary for trading.
= Smith also claimed that happiness and well-being were derived from the happiness
and well-being of others.
= John Stuart Mill: Model of homo economicus, a rational individual who makes
rational decisions that maximize utility, is self-interested, capable of learning from
experience, and with stable, consistent preferences.
= Mill believes that economics should be based on ‘an obvious psychological law’ (the
universe preference for a greater gain as opposed to a smaller one).
= George Katona: In 1952, he created the ‘Index of Consumer Sediment’ that
assesses people's economic expectations.
● Economic Decision Making
= Herbert Simon: Found that business people did not seek to maximize their profits, as
would be expected. Instead, they set target levels above which they would be satisfied
that their business would be more than viable (motivated to reach aspiration level). He
later coined the term ‘satisficing’ to refer to simple decision rules, or heuristics, in which
aspiration levels, rather than goal of maximization play a role.
● Behavioural Economics and Economic Psychology
= Behavioural economics: homo economicus can be violated because people’s
evaluation of the same good can vary depending on whether they own it or not
(Kahneman et al)
= They explained this endowment effect in terms of prospect theory’s value function,
which assumes:
, 1. Economic outcomes are evaluated as gains or losses relative to a reference
point
2. People are loss-averse
= Fetchenhauer et al: A significant contrast between the two disciplines relates to
research ethics. Specifically, whereas economic psychologists allow the deception of
research participants, as long as an appropriate ethical code is adhered to, such as
that of the British Psychological Society (BPS, 2014), this is not acceptable, according
to behavioural economics research ethics. Finally, it should be noted that behavioural
economics adopts a distinctive political position concerning the role of interventions to
affect behavioural change, libertarian paternalism . Applying this philosophy, those in
power use behavioural economic research findings to change the decision
environment so that people are more likely to make the decisions that those in power
deem to be in the people’s best interests.
● Financial Behaviour and Economic Activity
= Investors tend to trade too often, which may be associated with overconfidence or
thrill-seeking, and they sell rising shares too soon and falling shares too late.
___________________________________________________________________________
● What is Consumer Psychology?
= Consumer Psychology is about understanding why and how individuals and groups
engage in consumer activities, as well as how they are affected by them. A large part
of this discipline is focused on the cognitive processes and behaviour involved when
people purchase and use products and services.
= Consumer Psychology is an interdisciplinary subject area and it combines the- ories
and research methods from Psychology, Marketing, Advertising, Economics, Sociology
and Anthropology.
● The Rise of Advertising and Experimental Psychology
= Wilhelm Wundt: Often referred to as ‘the father of experimental psychology’, he was
one of the founders of the first major school of thought in psychology – structuralism.
Structuralism focused on understanding the structure of the mind and Wundt believed
that psychologists should focus on immediate conscious experience. Throughout his
career he investigated many different areas of psychology, but attention may be the
most relevant area to Consumer Psychology.
, = Experimental psychologists affirmed previous theories that consumers were
non-rational individuals who were easily influenced. One person in particular was a
supporter of this theory, Walter Dill Scott, also one of Wundt’s students. He believed
that senti- mentality, emotions and sympathy all made consumers more open to
suggestions made by advertisers.. In 1903, Scott published a book entitled The Theory
of Advertising in which he actively propagated the links between advertising and
psychology, and stated that the aim of advertising should be to capture people’s
attention
= Another psychologist who also contributed to the understanding of advertising was
Nixon. He hid behind a curtain and carefully observed the eye movements of
individuals while they were reading. From his studies he came to conclude that
pictures used in print advertisements can guide consumer’s attention to the text and
that there was little attentional difference between colour and black and white ads.
Week 2 - Cognition
● Endowment effect
= Tendency for people who own a good to value it more than people who do not.
= Traditionally, the endowment effect has been attributed to loss aversion causing
sellers of a good to value it more than buyers.
= This endowment effect is
usually demonstrated in two
experimental paradigms. In the
exchange paradigm,
participants who are randomly
endowed with one of two goods
are more reluctant to exchange
it for the other good than would
be expected by chance. In the
valuation paradigm, the
maximum amount of money
that buyers are willing to pay to
acquire the good (WTP) is
lower than the minimum amount
of money that sellers of a good
are willing to accept to
relinquish it (WTA), creating a
WTP–WTA gap
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