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Summary Psychology of Economic Behavior
Complete summary of all the articles of the course Psychology of Economic Behavior (week 1 - 7). I had a 9.5 for this course.
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Summary articles Psychology of Economic BehaviorWeek 1
1. Eric van Dijk (2010). Thinking and deciding like an economist
srational economic man. This rational economic man. This
Economists think that each consumer wants to maximize their own gainrational economic man. This
whole course is about challenging that view.
Consumers rely on preferences, income and prizes. Economists believe in the Iso-utility/indifference
curves (blue lines). The higher the curves, the higher the utility. Slopes are negative: the more of X
goes with less of Y, otherwise the utility goes up. The more you have of X, the less you value
increases in X. Along with these curves you have a budget-line, this line shows what you can buy
from your money (red curve).
If indeed we were maximizers, people would go with the highest indifference curve, given the
limitations (the budget-line). So in our case, 5 books and 5 CDs.
The dominating view in economics is to picture decision-making as a rational process, in which
decision-makers aim to maximize their own utility, while knowing their own (stable) preferences, and
being able to deal with the most complex situations.
The rational economic man (assumptions according microeconomics):
1. Knows his preferences, and these are assumed to be stable.
2. Is greedy and adage is: “more is better
3. Knows his budget constrains, and succeeds in maximizing utility, given these constrains.
4. Is selfish and only seems to care about the own outcomes (not that of others)
5. Does not have any emotions
In total a rational economic man: non-social and non-emotional and cares about preferences, income
and prizes. During this course, however, we will learn that humans are not the rational economic
man.
,2. Iyengar & Lepper (2000). When choice is demotivating
The current assumption is that people like to have choices and that the more choices, the better.
Older literature showed that choice increases intrinsic motivation and enhances performance on
tasks. However, these literatures had only a small number of options (2 vs 6 options)
It was shown that choice among limited alternatives is more beneficial than no choice at all.
However, real-world situations often provide more than a limited selection which is even
sometimes an overwhelming number of options we don’t like that, it is too complex and
therefore we will rely on heuristics
Choice overload hypothesis: the provision of extensive choices seems desirable, but it might lead
to unexpected demotivation in the end.
Study 1: a stand in a supermarket
Participants were presented with 6 or 24 jams
More people stop at the stand with more jam. BUT less people buy jams when there are 24
choices = less intrinsic motivation
Extensive array of options can at first seem highly appealing, but having too much choice seems
eventually to have hampered their later motivation to buy
It might be that people in the limited-choice condition thought that there was something special
about the specific jams buy maybe more jam
Study 2: educational setting
Introduction to social psychology classes. Students could write a two-page essay for extra credits,
choose from (condition a) 6 essay topics or (condition b) 30 essay topics
People seemed to prefer to exercise their opportunity to choose in contexts where their choices
were limited and people in the limited choice condition even performed better.
This study support the hypothesis that extensive choice contexts may be initially more appealing
but are more likely to hamper people’s intrinsic motivation.
Two possibilities:
1. People encountering overly extensive choices use a heuristic that leads them to feel less
committed to exercising their preferences
2. They feel more responsible for the choices they make because of the multitude of options
available. Bit their inability to invest the requisite time and effort in seeking the best option
may heighten their experience of regret with the options they have chosen
Study 3
Participants were presented with 6 or 30 chocolates
Control group: sample chocolate that was chosen for them
Experimental group: sampled chocolate of own choice.
People find it more enjoyable to choose a chocolate from a display of 30 than from a display of 6.
However, they were more dissatisfied and regretful of the choices they had made. They were
also less likely to choose chocolates rather than money as compensation for their participation
(in contrast with the limited-choice condition, they choose for the chocolates)
Choosers in both extensive-choice contexts and limited-choice contexts tend to report using a
satisficing heuristic.
Choosers in extensive-choice contexts reported experiencing the decision-making process as
being more enjoyable, more difficult and more frustrating
,Schwartz talks about this in the tyranny of choice: freedom well-being, choice freedom, thus
choice well being. But apparently not true, people might even feel depressive symptoms when
there is too much choice.
3. Schwartz et al. (2002). Maximizing versus Satisfying: Happiness Is a Matter of Choice.
According to economists: humans have well-ordered preferences and they have complete
information about the costs and benefits associated with each option. They compare the options
with one another on a single scale of preference, or value or utility. And after making the
comparisons, people choose so as to maximize their preferences, or values or utilities
unrealistic and violate the principles of rational choice
In choice situations, people actually have the goal of satisficing rather than maximizing.
Satisficers encounter and evaluate goods until one is encountered that exceeds the acceptability
threshold.
Increases choose is unattractive:
1. Avoidance of potential regret: the more options there are, the more likely one will make an
nonoptimal choice and this prospect may undermine whatever pleasure one gets from one’s
actual choice
2. It creates a seemingly intractable information problem
Schwartz suggests that as options are added within a domain of choice, three problems materialize:
1. Problem of gaining adequate information about the options to make a choice
2. Problem that as options expand, people’s standards for what is an acceptable outcome rise
3. Problem that as options expand, people may come to believe that any unacceptable result in
their fault, because with so many options, they should be able to find a satisfactory one
Thus: people are better of with constrained and limited choice
For maximize, added options pose problems. One cannot be sure that one is making the maximizing
choice without examining all the alternatives and when the choice has been made one might
experience regret.
For satisficers, added options have different effects. The satisficer is looking for something that
crosses the threshold of acceptability, something that is good enough. With good enough, rather
than the best as a criterion, the satisficer will be less inclined to experience regret.
Study 1: maximizing, satisficing and regret
Relationship between scores on maximization scale and regret scales and scores on measures of
happiness, life satisfaction, optimism, depression etc.
Maximizers desire the best possible result, satisficers desire a result that is good enough to meet
some criterion
Maximizers are less happy, less satisfied, less optimism, lower self-esteem and feel more regret
and depression.
Maximizing is not the same as perfection!
Study 2: maximizing, satisficing, social comparison and consumer behavior
Guided by the notion that maximizers might seek more information than satisficers when making
decisions
Relationship between maximization and the amount of social comparison that goes into making
purchases studies showed that unhappy people are more affected by upward social
comparison than happy people
, Participants were asked to recall an inexpensive or an expensive recent purchase maximizers:
more social comparison (upward and downward) and product comparison, feel more regret and
more counterfactual thinking, less happiness regarding purchases
Study 3: maximizing, satisficing and social comparison
Are maximizers more interested and sensitive to social comparison feedback?
Let participants solve puzzles and verbal Scholastic Assessment Test
Maximizers who saw their peer solve anagrams faster greater doubts about ability and more
negative mood than when peers solved fewer anagrams
Satisfiers showed no response to social comparison information
Study 4: maximizing, satisficing and regret
Does regret mediate the causation between maximizing and dissatisfaction?
Ultimatum bargaining game: there is an allocator and a recipient. The allocator can offer the
recipient an amount of his money. The recipient can either accept this offer, or reject it. If he
rejects it, both players get nothing.
Rational would be for the allocator to offer the smallest amount of money possible, and for the
recipient to accept everything that is offered.
Male (but not female) maximizers made smaller offers than male satisfiers.
Maximizers (both genders) offered less when the recipient’s reservation price was going to be
revealed, but satisficers offered more when the recipient’s reservation price was going to be
revealed
Maximizers were less satisfied with the outcomes than satisfiers. HOWEVER, not especially
dissatisfied in the condition in which the reservation price was revealed.
The studies suggest that although maximizers may in general achieve better objective outcomes than
satisficers (as a result of their high standards and decision procedures), they are likely to experience
these outcomes as worse subjectively. Some reasons:
1. To be a maximizer is to want the best option exhaustive search of possibilities
2. The process of adaptation will make virtually every consumption experience less satisfying
than one expects it to be
3. Maximizers more likely to depend on social comparison
4. It is plausible that maximizers have higher expectations than satisfiers
In a world of limited options, maximizers might be more disappointed than satisfiers, but they would
not have to take personal responsibility for the results. Whereas in a world of unlimited options,
there is no excuse for failure. However, maximizing is not necessarily bad for someone’s well-being:
greater achievements might compensate for lower satisfaction.
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