CONSUMER AND ECONOMIC
PSYCHOLOGY SUMMARY
Psychology in Society Minor
2020-2021
,Table of contents
Week 1: Introduction ................................................................................................................... 2
Reading 1: Introduction to Economic Psychology: The Science of Economic Mental Life and
Behaviour (Chapter 1) ......................................................................................................................... 2
Reading 2: Consumer Psychology What it is and how it emerged (Chapter 1) .................................. 5
Week 2: Cognition........................................................................................................................ 8
Reading 3: Morewedge, C.K., & Giblin, C.E. Explanations of the endowment effect: An integrative
review. ................................................................................................................................................. 8
Reading 4: Greifeneder, R., & Bless, H. Using information: Judgmental shortcuts. ......................... 11
Week 3: Identity and Social Influence ......................................................................................... 16
Reading 5: Reed II, A. Social identity as a useful perspective for self-concept-based consumer
research............................................................................................................................................. 16
Reading 6: Argo, J.J. A contemporary review of three types of influence in consumer psychology.. 22
Week 4: Segmentation ............................................................................................................... 26
Reading 7: Klöckner, C.A. Target group segmentation: Why knowing your audience is important. 26
Reading 8: Zarouali, B., Dobber, T., De Pauw, G., & De Vreese, C. Using a personality-profiling
algorithm to investigate political microtargeting: Assessing the persuasion effects of personality-
tailored ads on social media. ............................................................................................................ 29
Week 5: Marketing and innovation............................................................................................. 35
Reading 9: Chance, Z., Gorlin, M., & Dhar, R. Why choosing healthy food is hard, and how to help:
Presenting the 4Ps framework for behavioural change.................................................................... 35
Reading 10: Roggeveen, A.L., Grewal, D., & Schweiger, E.B. The DAST framework for retail
atmospherics: The impact of in- and out-store retail journey touchpoints on the customer
experience. ........................................................................................................................................ 39
Week 6: Introducing the working field ........................................................................................ 43
Reading 11: Hooks, T., Schuitema, G., & McDermott, F. Risk perceptions toward drinking water
quality among private well owners in Ireland: The illusion of control. ............................................. 43
Reading 12: Steg, L., Shwom, R., & Dietz, T. What drives energy consumers? ................................. 47
Slimstampen: practice questions & answers ............................................................................... 52
,Week 1: Introduction
Reading 1: Introduction to Economic Psychology: The Science of Economic Mental Life
and Behaviour (Chapter 1)
1.1 Introduction
• Economic psychology has an important contribution to provide economics with a realistic and
insightful understanding of human rationality in the economic domain.
o This extends to other psychological factors that may play a role in financial crises; our
emotional tendencies, such as fears in the face of financial risk, and our social nature,
including our tendency to compare ourselves with and to follow others.
• Second, both household and personal economic decision-making are becoming increasingly
complex and have significant consequences for our quality of life and psychological well-being.
• Consider finally, that people’s thoughts and feelings about material possessions, money, prices,
the economy and inflation are at the core of economic mental life, and that the psychology of such
things is fascinating and worthy of study for its own sake.
• Our description of economic psychology as the science of economic mental life and behaviour
reflects a contemporary approach to psychology, conferring equal status on the twin endeavours
of understanding mental life and understanding behaviour.
• As is well known, the history of psychology has been characterized as a series of paradigm shifts,
or fundamental changes in perspective.
• Defining characteristics of economic psychology
o A branch of applied psychology (both theory and application are central) → this means
that economic psychologists take seriously the responsibility of providing the basis for
research-informed policies to support people’s economic well-being and the health of the
economy.
o Consequently, it is an interdisciplinary endeavour, with increasingly fruitful collaborations
with mainstream and behavioural economics and other biological and social sciences.
1.2 The emergence of the discipline
• The origins of economic psychology can be traced to Greek philosophers and, more recently, to
seventeenth-century economists who reflected on psychological matters, notably Adam Smith.
Smith explored the concept of self-love and the importance of being able to take others’ roles, as
in the social interactions necessary for trading. In addition, he claimed that happiness and well-
being were derived from the happiness and well-being of others, and explored several
psychological concepts, including sympathy, emotions, and virtues in general.
• Jeremy Bentham (1748–1832) developed Smith’s concept of self-love and characterized utility as
the permanent hedonistic pursuit of pleasure and avoidance of pain, along with calculations to
maximize utility.
• John Stuart Mill (1806–1873) conceived the still respected (among mainstream economists) model
of the 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.
• W. Stanley Jevons (1871) derived marginal utility theory from Mill’s model, while adding deductive
mathematics to establish some basic assumptions, later tested empirically.
• Finally, in the 1870s, Karl Menger and his collaborators, Böhm-Bawerk, von Wieser, Sax and
others, formed what became known as the Austrian Psychological School, or the Marginalist
School, that emphasized the importance of subjective elements in the economy.
• Economic psychology as a discipline can be traced to the late nineteenth century. These
developments allowed psychologists and some economists to start questioning the nature of the
, psychological assumptions used in economic theory, aiming at a more complex theory of
rationality, or its rejection altogether.
• In his classic study of how firms actually work, Administrative Behaviour, Simon (1947) found that
business people did not seek to maximize their profits, as would be expected from standard
economic theory. Rather, they set target levels above which they would be satisfied that their
business would be more than viable.
o That is, they were motivated to reach an aspiration level. He later coined the term
‘satisficing’ to refer to simple decision rules, or heuristics, in which aspiration levels, rather
than the goal of maximization, play a major role.
• Another major development in economic decision theory concerns choices between alternative
courses of action whose outcomes are distributed over time, for example, either spending now or
saving for a pension; or at the societal level, continuing to burn fossil fuels or developing energy
sources less harmful to the planet in the long term → intertemporal choices.
o Further research is needed to clarify the relative importance of these different aspects of
time perspective in economic decision-making
• Behavioural economics, more usually known by its American spelling (behavioral), is the branch
of economics that uses psychological concepts and theories to better understand economic
behaviour.
o the discipline was born of a fruitful interaction between psychologists Daniel Kahneman
and Amos Tversky, and the economist Richard Thaler in the 1970s.
o One of the first interdisciplinary collaborations in behavioural economics was research
showing that economic behaviour can violate homo economicus’s (expected) utility
maximization principle because people’s evaluation of the same good can vary, depending
on whether they own it or not.
o They explained this endowment effect in terms of prospect theory’s value function, which
assumes that: (1) economic outcomes are evaluated as gains or losses relative to a
reference point, and (2) people are loss-averse.
• The similarities between behavioural economics and economic psychology are perhaps more
important than their differences.
o First, both acknowledge many of the same historical roots described earlier, with both,
for example, identifying Herbert Simon as a founding parent
o Second, both disciplines are essentially empirical sciences, placing a premium on the
validity of theories tested against behavioural evidence.
o Finally, both are applied sciences motivated to develop effective support for individuals
and society in the economic domain.
• Although both disciplines draw on psychology and economics, their main differences concern their
ontological and epistemological assumptions and the research ethics of their parent disciplines.
o First, economic psychology draws broadly on contemporary psychology, which, as argued
earlier, includes the primary goal of modelling mental life. On the other hand, the
psychological component of behavioural economics is dominated by the approach to the
psychology of judgement and decision-making developed by Tversky and Kahneman and
their colleagues. In that sense, then, perhaps behavioural economics can be seen as a
school within a broader interdisciplinary endeavour, in much the same way that the
Chicago School is viewed in economics.
o Second, behavioural economics deems a narrower range of methods to be scientific, and
requires data to be either from the real economic world or to be motivated by meaningful
incentives.
