Summary Papers Money and Financial Behavior + Discussion questions
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Course
Money and Financial Behavior (590032B6)
Institution
Tilburg University (UVT)
This summary includes a summary of the mandantory papers of the cours, about the following six topics:
- Money and Materialism
- Scarcity and Corruption
- Poverty
- Inequality
- Taxation
- Saving
Also, all of the discussion questions from the lectures have been elaborated and added to each...
Money & Financial Behavior
Money and Materialism
Lea, S. E., & Webley, P. (2006). Money as tool, money as drug:
the biological psychology of a strong incentive.
Purpose of the Study: The paper explores why money is a powerful motivator for
humans, examining its biological basis and how it functions as both a tool and a drug.
The authors aim to bridge the gap between the science of money and the science of
life, which they argue has been neglected in previous research.
The authors acknowledge that humans are social and cultural beings and that
observed behavior is the product of the interaction between our nature and our
environment. A "biological explanation" in this context does not mean that behavior is
"innate" or "pre-programmed," but rather that selective advantage must play a role in
explaining why people are so motivated to obtain money, even if such behavior does
not seem to provide a direct survival advantage under current circumstances.
The authors emphasize that they are interested in money itself, not in money as a
metaphor for property or economic activity in general. They acknowledge that the
desire for money is closely linked to the desire for the things it can buy, but argue that
these two desires are logically distinct and should be examined separately. Most
strong human motivations, such as hunger, thirst, and the need for social contact, are
adaptive and have clear links to survival or reproduction. The drive to acquire money
presents a challenge because it does not fit directly into this category. It is not clear
what adaptive purpose it serves, especially since money is a relatively recent cultural
construct
The authors explore why money holds such significant motivational power by
considering two main theoretical frameworks:
- Tool Theory: This theory posits that money functions as a tool that enables
individuals to obtain biologically relevant incentives, such as food, shelter, and
other goods and services. It suggests that the value of money lies in its ability to
facilitate exchanges that enhance wealth and meet basic needs.
Behaviors such as the emotional attachment to money, the pursuit of
status, non-biological motivations, cultural influences, and the addictive
qualities of money all challenge the adequacy of Tool Theory in explaining
why people are motivated to acquire money. That’s why they came up with
the drug theory.
- Drug Theory: This theory posits that money can mimic natural incentives,
providing an illusory fulfillment of instincts, similar to how psychoactive drugs
work. The authors suggest that money parasitizes human instincts related to
trading and play.
,The authors present several empirical findings that suggest that Tool Theory alone is
not sufficient to explain people’s complex relationship with money:
Perceptual Differences: Studies have shown that individuals perceive money
differently than other objects. For instance, children tend to overestimate the
size of coins compared to similar non-monetary objects. This suggests that
money holds a unique psychological status, which is not accounted for by Tool
Theory, indicating a "drug-like" quality that distorts cognitive processing.
Money Illusion: The phenomenon of money illusion, where individuals
misjudge the real value of money due to its representation, shows that money
influences behavior in ways that transcend its functional utility. This
misjudgment aligns more with Drug Theory, as it implies that money can have
emotional and cognitive effects beyond its economic role.
Behavioral Patterns: People often engage in behaviors surrounding money
that are not purely functional or rational, such as compulsive spending or
saving, which can be better explained through the lens of Drug Theory. This
behavior can lead to emotional distress or addiction-like patterns, paralleling
the effects of psychoactive drugs.
Status and Social Comparisons: The authors note that money can serve as
a status symbol, which motivates individuals beyond the basic functional role
of money as a tool for transactions. This status-driven behavior reflects a more
complex psychological relationship with money that Tool Theory does not fully
encapsulate.
According to this Tool/Drug theory….
Money derives its motivating power from its ability to reflect the satisfaction of
basic human instincts.
Money is a "drug" in that it can provide the illusion of satisfying these instincts
even when it is unable to actually provide them.
Money's appeal is based on two primary instincts: reciprocal altruism and play.
Reciprocal altruism refers to the tendency of people to help and
cooperate with others, even strangers, with the expectation that these
favors will be repaid in the future.
Play is an intrinsically rewarding activity that is essential for the
development of social skills and cognitive flexibility.
Key findings of the research:
The authors conclude that a combination of Tool and Drug theories is necessary to
fully understand money's motivational power. They identify trading and object play as
instincts that money particularly exploits.
Neuroimaging studies indicate that money activates brain areas associated with
natural rewards, similar to the effects of addictive substances like cocaine. This
suggests that money has a drug-like quality in its ability to stimulate desire and
reward.
,The paper emphasizes that while money has cultural significance, it is also deeply
rooted in biological instincts. The authors argue that understanding money requires
an analysis of both its cultural history and its biological underpinnings.
Conclusion: The authors advocate for a more integrated approach to studying
money, one that considers both its instrumental and drug-like qualities. They highlight
the need for further research to explore the biological mechanisms behind money
motivation and its implications for human behavior.
This summary encapsulates the main arguments and findings of the paper,
illustrating the complex relationship between money, motivation, and human instincts.
Page, C. (1992). History of conspicuous consumption: Meaning,
measure, and morality of materialism.
Purpose of the Study: The paper explores the historical evolution of conspicuous
consumption, tracing its roots from tribal societies to modern America, highlighting
how the desire to display wealth has persisted across time. It discusses the shift from
exclusive consumption by the aristocratic elite to broader participation by the
nouveau riche and even the middle class, driven by industrialization and capitalism.
The study aims to analyze three theories of conspicuous consumption and how
marketing has adapted to these behaviors, providing a framework for understanding
materialism in contemporary society.
Conspicuous consumption The purchase of goods or services for the specific
purpose of displaying one's wealth
This behavior is not a modern invention but has roots that trace back to
tribal times when ownership of certain goods signified power and success.
Drivers for conspicuous consumption:
Veblen Effect: Abnormal market behavior where consumers purchase the
higher-priced goods whereas similar low-priced (but not identical) substitutes
are available. It is caused either by the belief that higher price means higher
quality, or by the desire for conspicuous consumption (to be seen as buying an
expensive, prestige item).
Bandwagon effect: A cognitive bias that leads us to adopt ways of thinking,
working, and acting simply because others are doing it.
Snob effect: The tendency of status-conscious people to avoid products that
are owned by the common people. Instead, they seek out products with limited
availability to emphasize their prestige ().
Historical context and development:
Traditional Societies: In early societies, particularly feudal Europe,
conspicuous consumption was primarily the domain of the aristocracy. Wealth
was displayed through grand feasts, elaborate clothing, and other forms of
ostentation, which served to reinforce social hierarchies and power dynamics.
, This period is characterized by limited access to luxury goods, making such
displays exclusive to the elite.
Achieving Societies: The Industrial Revolution marked a significant shift, as
new wealth emerged among the nouveau riche. This group began to engage
in conspicuous consumption to assert their status, challenging the traditional
aristocracy. The Gilded Age in America exemplifies this transition, where the
display of wealth became a means of social mobility and recognition.
Affluent Societies: Post-World War II, the concept of conspicuous
consumption expanded further as mass production made luxury goods more
accessible. The rise of consumer culture led to a democratization of status
symbols, where even the middle class could participate in ostentatious
displays of wealth. This period saw a shift in motivations, as consumption
became less about exclusivity and more about belonging to a social group.
Post-Affluent Societies: The 1980s and early 1990s introduced a new phase
characterized by a fixation on material possessions. This era is marked by the
emergence of consumerism as a cultural norm, where the act of consumption
itself became a defining feature of identity and social status.
Page argues that marketing has played a major role in the development of
conspicuous consumption.
Association with lifestyle: Marketers use promotional tactics to associate
products with an attractive lifestyle, encouraging consumers to consume in
order to belong to a certain group.
Planned obsolescence: Manufacturers shorten the lifespan of products to
increase repurchase rates. Advertising is used to convince consumers that
newer versions of products are "socially superior".
Creation of new categories: Marketers create new cultural categories, such
as the "yuppie," to create new market segments and stimulate consumption
patterns
In conclusion, the paper provides a comprehensive analysis of the historical and
theoretical dimensions of conspicuous consumption. It illustrates how this behavior
has evolved from an elite privilege to a widespread cultural phenomenon, driven by
complex social dynamics and marketing influences. Understanding these trends is
crucial for grasping the contemporary preoccupation with material possessions in
American society.
Discussion
1. What is the central question that is addressed in the paper by Lea & Webley
(2006; hereafter: L&W)?
The central question addressed in the paper by Lea & Webley (2006) is whether
there is a biological basis for the powerful human motivation for money. Specifically,
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