Economic psychology is a field that explores how economics imposes on the psychology of groups and individuals alike, and the individual and collective effect of the people on the economy.
The transactional interplay between society at the macro level and micro level of socio-cultural institutions shows that the traffic between these two is not only possible but must also be welcomed and accepted as an up-and-coming field of study.
Economic psychology and the study of the field originally started during the later part of the 19th century. The most significant contributions to the study were from the American sociologist Thorstein Veblen and the French social scientist Gabriel Tarde.
The initial ambitions of people such as Veblen and Tarde to challenge economics’ very foundations have now become more modest than ever. Among the legacies of their analysis of economics is the discovery that psychological considerations are critical in economic research and theory
A small but strong intellectual community populates the field of economic psychology in its own right. They effectively challenge the suppositions of rational that support “homo economicus.” Aside from this, the cognitive biases influencing decision-making and are considered part of human nature have now become renowned in every single branch of social science.
Marketing students these days learn about the social-emotional meaning behind brands and how considerations of social identity drive consumption practices. Richard Thaler, an economist, has pointed out that money that other economists consider fungible, or how different types of money are equivalent to each other, is actually subject to mental accounting. It means that money is viewed in different contexts in different ways.
Money received as a form of regular income, for example, is categorized differently from money that comes from a windfall. The concept of fungibility is not only a simplifying assumption. It doesn’t do justice to how people are managing their economic affairs in the actual world. The concept of money of people is dependent on context and situated.
Economic psychology also takes a keen interest in economic behavior in various historical and cultural contexts. It means that economic socialization or the way children learn their economic world’s ways has become an integral aspect of economic psychology.
Developmental changes that take place as a child grows means that their economic decision-making theories all inevitably depend on their psychological development level. Economic psychologists in household economics have been investigating money management in the family.
Carole Burgoyne, a psychologist, has pointed out that the styles that couples and families adopt for financial negotiation can reveal substantial areas and reflect deep-rooted tensions in their relationships that would have been otherwise tricky to asses.
Aside from psychology and economics, other areas of scholarship and research also influence and impinge on economic psychology. For instance, behavioral economics tries blending psychology and economics although it is primarily limited to the evaluation of psychological facets of decision-making and economical improvement by putting it on a more rational psychological foundation.
The field of economic psychology is expected to remain important and valid as long as the cross-fertilization between psychological and economic practices and theories receives mutual respect and as long as there is a willingness to synthesize from disputes and debates.