The psychology of economic behaviour
Lecture 1 - Thinking like an economist 4
Micro-economics 4
Preferences: indifference curves 4
Budget line: income and prices 5
Greed: we always want more 5
Dealing with information 7
Articles lecture 1 10
Van Dijk (unpublished paper): Thinking and deciding like an economist. (= separately added
as pdf) 10
Hoyer, K., Zeelenberg, M., & Breugelmans, S. M. (2022, Online First). Greed: What is it
good for? Personality and Social Psychology Bulletin.
https://doi.org/10.1177/01461672221140355 11
Iyengar, S, & Lepper, M. (2000). When choice is demotivating: Can one desire too much of a
good thing?. Journal of Personality and Social Psychology, 79(6), 995-1006. 14
Schwartz, B., Ward, A., Monterosso, J., Lyubomirsky, S., White, K., & Lehman, D. R. (2002).
Maximizing versus satisficing: Happiness is a matter of choice. Journal of Personality and
Social Psychology, 83(5), 1178-1197. 17
Redden, J. P., Haws, K. L., & Chen, J. (2017). The ability to choose can increase satiation.
Journal of Personality and Social Psychology, 112, 186-200 22
Lecture 2 - Prospect theory 26
Prospect theory 26
Mental accounting 28
Sunk costs 33
Articles lecture 2 35
Kahneman, D, & Tversky, A. (1984). Choices, values, and frames. American Psychologist,
39(4), 341-350. 35
Thaler, R. (1999). Mental accounting matters. Journal of Behavioral Decision Making, 12(3),
183-206. 38
Evers, E. R. K., Imas, A., & Kang, C. (2022). On the role of similarity in mental accounting
and hedonic editing. Psychological Review, 129, 777-789. 42
Roth, S., Robbert, T., & Straus, L. (2015). On the sunk-cost effect in economic
decision-making: A meta-analytic review. Business Research, 8, 99-138. * This Open Access
article can be downloaded at https://link.springer.com/article/10.1007%2Fs40685-014-0014-8
47
Lecture 3 - Uncertainty 52
Prospect theory and weighing of (un)certainty 52
The disjunction effect 52
Pursuing useless information (to resolve uncertainty) 53
Curiosity 57
Curiosity and time 58
Articles lecture 3 60
Shafir, E, & Tversky, A. (1992). Thinking through uncertainty - Nonconsequential reasoning
and choice. Cognitive Psychology, 24(4), 449-474. 60
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, Bastardi, A, & Shafir, E. (1998). On the pursuit and misuse of useless information. Journal of
Personality and Social Psychology, 75(1), 19-32. 65
Mechera-Ostrovsky, T., Liew, S. X., & Newell, B. R. (2023). The role of risk, regret, and
rejoice in non-instrumental information seeking. Journal of Behavioral Decision Making, 36:
e2294. 71
Van Dijk, E., & Zeelenberg, M. (2006). When curiosity killed regret: Avoiding or seeking the
unknown in decision-making under uncertainty. Journal of Experimental Social Psychology
43(4), 656-662. 75
Noordewier, M. K., & Van Dijk, E. (2017). Curiosity and time: From not knowing to almost
knowing. Cognition and Emotion, 31, 411-421. 78
Lecture 4 - emotions 81
Choices and feelings 81
Predicting feelings, utility and decisions 88
Articles lecture 4 90
Van Dijk, E, & Zeelenberg, M. (2005). On the psychology of 'if only': Regret and the
comparison between factual and counterfactual outcomes. Organizational Behavior and
Human Decision Processes, 97(2), 152-160. 90
Huang, W., & Zeelenberg, M. (2012). Investor regret: The role of expectation in comparing
what is to what might have been. Judgment and Decision Making, 7, 441- 451. 93
Tykocinski, O, & Pittman, T. (1998). The consequences of doing nothing: Inaction inertia as
avoidance of anticipated counterfactual regret. Journal of Personality and Social Psychology,
75(3), 607-616. 97
Krijnen, J. M. T., Zeelenberg, M., Breugelmans, S. M., & Van Putten, M. (2020). Inaction
inertia in retirement saving. Journal of Behavioral Decision making, 33, 52- 62. 1
Gilbert, D., Morewedge, C., Risen, J., et al. (2004). Looking forward to looking backward -
The misprediction of regret. Psychological Science, 15(5), 346-350. 1
Lecture 5 - It’s about time 1
Intertemporal choice (discounting) 1
Financial scarcity and intertemporal choice 1
Postponing decisions 1
Retrospective utility (the remembering self) 1
Articles lecture 5 1
Loewenstein, G., & Thaler, R. H. (1989). Anomalies - Intertemporal choice. The Journal of
Economic Perspectives, 3(4), 181-193. 1
Hilbert, L. P., Noordewier, M. K., & Van Dijk, W. W. (2022). Financial scarcity increases
discounting of gains and losses: Experimental evidence from a household task. Journal of
Economic Psychology, 92: 102546. 1
Krijnen, J. M. T., Zeelenberg, M., & Breugelmans, S. M. (2015). Decision importance as a
cue for deferral. Judgment and Decision Making, 10, 407-415. 1
Kahneman, D, & Thaler, R. (2006). Anomalies - Utility maximization and experienced utility.
The Journal of Economic Perspectives, 20(1), 221-234. 1
Lecture 6 - Self-interest and fairness 1
The importance of self-interest and collective interest 1
True fairness vs. strategic fairness 1
Ethics 1
The Die under the cup paradigm: The higher the eyes on the die, the more money you
will earn. You can report yourself how many eyes you threw. Nobody else can check. 1
Articles lecture 6 1
2
, Van Dijk (2015). The economics of prosocial behavior. 1
Shalvi, S., Dana, J., Handgraaf, M. J. J., & de Dreu, C. K. W. (2011). Justified ethicality:
observing desired counterfactuals modifies ethical perceptions and behavior. Organizational
Behavior and Human Decision Processes, 115(2), 181-190. 1
Weisel, O., & Shalvi, S. (2015). The collaborative roots of corruption. Proceedings of the
National Academy of Sciences USA, 112, 10651-10656. 1
Wang, L., Zhong, C., & Murnighan, J. K. (2014). The social and ethical consequences of a
calculative mindset. Organizational Behavior and Human Decision Processes, 125, 39-49. 1
Lecture 7 - Preference reversals 1
Preference reversals 1
Final thoughts 1
Articles lecture 7 1
Bazerman, M., White, S., & Loewenstein, G. (1995). Perceptions of fairness in interpersonal
and individual choice situations. Current Directions in Psychological Science, 4(2), 39-43. 1
Hsee, C. K. (1996). The evaluability hypothesis: An explanation for preference reversals
between joint and separate evaluations of alternatives. Organizational Behavior and Human
Decision Processes, 67(3), 247-257. 1
Shaffer, V., & Arkes, H. (2009). Preference reversals in evaluations of cash versus non-cash
incentives. Journal of Economic Psychology, 30(6), 859-872. 1
O’Donnell, M., & Evers, E. R. K. (2019). Preference reversals in willingness to pay and
choice. Journal of Consumer Research, 45(6), 1315–1330. 1
Lu, Z. Y., & Hsee, C. K. (2019). Less willing to pay but more willing to buy: How the
elicitation method impacts the valuation of a promotion. Journal of Behavioral Decision
Making, 32, 334-345. 1
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, Lecture 1 - Thinking like an economist
Aim: teach us about economic behaviour, and the psychology underlying this behaviour.
How can we explain why people buy something?
Economics and psychology work together to explain behaviour. → behavioural economics
Exam is not difficult: no multiple choice, only 7ab open ended questions. Questions are not about the
minor details. Focus on the most important things. (How did they study this, what are the main
findings, what were the hypotheses)
Each meeting has a specific theme.
Thinking like a traditional economist - how do we make our decisions?
Simple, elegant models of (micro)economics. What are the assumptions?
- Assumption of greed: self interest. We want more and more and more.
Once upon a time… (not for exam)
Field of economics as a scientific field was developed by two people:
- Adam Smith : wrote book ‘Wealth of Nations’, which shaped the field.
- Rational Economic Man: decision makers are rational, and that is a good thing
- The invisible hand: market mechanism; the invisible hand will see to it that there will
never be unemployment.
- Lots of unemployment → workers have to lower their demand for wages →
demand for work can be higher
- People prefer employment which is most advantageous to the society, even though
nobody has the most self involvement in mind.
- Carl Menger: wrote book ‘Grundsätze’
- Utility: we care when we make decisions about how much utility a decision gives us.
- Motives: we differ from each other in terms of what is important to us
- Menger’s view on life, food and tobacco: there is a hierarchy in things that we want,
and the utility we assign to things. Most basic thing we need is food, after that comes
tobacco. At some point, some things become important to you.
- Comparable to hierarchy of Maslow
Micro-economics
How we make our decisions as consumers.
In order to know what a rational consumer is going to do, we need information about:
- Preferences
- Income
- Prices
Preferences: indifference curves
Each curve is an indifference curve (iso-utility
curve)
Combines combinations of two products about
which the consumer is indifferent. Equally happy,
the same utility.
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