A summary of the UU course 'psychology and economic behaviour', containing a lot of information on different subjects, like prospect theory, framing, behavioural economics, risk aversity, and a lot more.
Psychology and behaviour
Toetsing
Exam 60%
Individual assignment 20%
Group assignment 20%
Week opzet:
Vrijdag t/m dinsdag: lezen voor de lecture
Dinsdag 11.00-12.45: lecture
Donderdag 13.15-15.00: verplichte tutorial
Economic psychology is the science of economic mental live and behaviour, trying to
understand the psychological processes underlying economic behaviour and decisions.
Behavioural economics is another type of study compared to economic psychology. The
difference is that economic psychology has a broader focus.
Uncertainty = you don’t know the outcome and probabilities
Risk = possible outcomes and probabilities are known
Prospect theory: Assign outcomes a subjective value (=utility) and translate probabilities into
decision weight. Then choose the prospect with the highest evaluation.
Utility curve (steeper for losses shows the loss aversion):
Endowment effect: you value your own products higher.
Positive frame makes people risk averse, negative frame makes people risk seeking.
Status quo effect: you prefer current state of affairs and not losing what you have now
, SWB = subject well-being. Different factors influence SWB. There is data proving that higher
household income increases SWB.
Money contributes to SWB, but the effect is especially strong if you don’t live in a high-
welfare country and if you set high importance on it.
Money leads to behaviour and attitudes that are work-oriented and self-centered.
Scarcity leads to overfocusing on the problem and neglecting other problems.
A moderator is a third variable that influences B. For example if A influences B, people can
say A causes B. But maybe the actual difference is because of a third variable C, or A
influences C and thereby influences B instead of directly.
A successful decision maker makes long-term orientated decisions, minimizes regret, and
contributes to subjective well-being.
You understand the world in different stages of life:
0 – 2 Sensorimotor stage perception + physical actions you just see money
as an object
2 – 7 Preoperational stage symbolic representation of the world (language,
egocentric perspective) you understand money has value
7 – 11 Concrete operational stage logical and concrete but no abstract problem
solving you have more ideas about the flows of money and what you can do with
it and how to get it, but you make a lot of assumptions and generalizations
11 – adult Formal operational stage generalization and hypothetical thinking
skills thinking about saving money
Emotional development:
Newborn positive or negative feelings
At 6 months different emotions, like joy, surprise, anger, disgust, etc.
At 18 months self-awareness
2 years pride, shame
Inter-temporal choice = choices between outcomes differing in timing, quality/quantity
sooner smaller vs later larger
Visual images can help (for example showing the hotel you can get with the voucher now or
in one year).
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