Summary articles and lectures Economic and consumer Psychology
Week 1:
Consumer vs Economic Psychology
● Consumer psychology: Why do people buy things? Relationship: person ↔ product
● Economic psychology: How do people behave economically? Why take risks or make
decisions? Relationship: person ↔ economy
Advertising
● Definition: Paid or unpaid communication by sponsors to inform a target audience.
● Broad view: Competition between brands, informing, funding, employer image.
● Individual view: Inform and impress.
History
● Since the Industrial Revolution, brands differentiate products.
● They aim to create benefits that stand out → Unique Selling Proposition (USP).
Advertising Approaches
● Tell approach: Direct communication.
● Hard sell: Urgent, focuses on immediate buying (short-term).
● Soft sell: Subtle, focuses on trust and long-term relationship.
● Argument-based (rational): Logic, facts.
● Affect-based (emotional): Triggers like joy or fear.
Metrics
● ROI (Return on Investment): Net profit / investment.
○ Example: $1M invested → $2.5M profit.
● AED (Advertising Elasticity of Demand): Change in sales due to income change.
○ Example: Income ↑ 10% → Sales ↑ 1.2% → AED = 0.12
Influences on Advertising
● Short-term vs long-term impact.
● Product life cycle: Introduction → Growth → Maturity → Decline.
● Product type: durable vs non-durable.
Targeting & Segmentation
● Geographical: Location-based
, ● Demographic: Age, income, religion, sex
● Behavioral: Usage patterns (loyalty cards)
● Psychographic: Personal values
○ Big Five personality traits: Openness, Conscientiousness, Extraversion,
Agreeableness, Neuroticism
Implications of Advertising
● It can normalize and idealize behavior.
● It can cause psychological decline (trends) and increase materialism.
● Ethics: Promoting unhealthy products (alcohol, tobacco, drugs).
Fossil Fuel Advertising Bans
● Legal bans (The Hague) on diesel, petrol, aviation, cruise travel ads.
● Reason: Normalizes high-carbon consumption → social norms reinforce harmful behavior.
● Limitations: Greenwashing, reduced demand, barriers removed for sustainable
consumption.
Short vs Long Term Effects
● Short-term: Immediate CO₂ reduction
● Long-term: Gradual shift in social norms → younger generations behave differently
Symbolic Politics & Innovation
● Rejects harmful normalization, sparks public debate.
● Builds public trust in climate action → ripple effect in other countries.
● Can create niches for sustainable alternatives.
Advertising Restrictions & Transitions
● Bans on harmful products can stimulate less harmful innovations.
● Types of bans:
1. Product advertising ban: Harmful product ads prohibited → incentive to innovate.
2. Brand advertising ban: Entire brand ads prohibited → weak/no innovation
incentive.
Example: Norwegian Beer Study
● 1975: Strong advertising ban → low-alcohol beer innovation.
● 1997: Brand advertising ban → increased alcohol-free beer market as niche.
● Other factors: stricter alcohol rules, tech improvements, changing consumer preferences.
● Mechanism transferable to environmental policy: electric cars, renewables.
,Risks & Solutions
● Risk: Greenwashing (fake “green” image without real change)
● Policy solutions: Phase-based regulation, mix of product & brand bans, sustainable
product requirements.
How well does advertising work?
Advertising elasticity= measures % change in sales for a 1% change in advertising
short term elasticity = effect on current period sales
Long term elasticity= effect on current and future sales
Average elasticities
- short term mean= 0.12, short term median= 0.05
- Long term mean= 0.24, long term median= 0.10
- Advertising works, but its effect is small and smaller than we previously believed
Advertising elasticity has declined over time > elasticity decreases more in recent years, because:
- more competition
- more advertising clutter
- internet as alternative information source
- ability to skip ads
Elasticity differences by product type: elasticity is highest → lowest
1. Durable goods
2. pharmaceuticals
3. services
4. food
5. nonfood nondurables
Product life cycle effects: growth stage > mature stage: especially strong for durable goods,
advertising is more effective early in life cycle.
Geographic Differences: Europe > North America in advertising elasticity, because europe
underadvertises: more room for impact, US may be overadvertised → diminishing returns
Advertising type: short term: tv > print, long term: print> TV ( persist longer )
, Elasticity does not decrease during recessions. Long term elasticity is actually higher during
recessions: less advertising clutter, consumers pay more attention, delayed purchases after
recession.
Advertising budgets: because elasticity is small and declining, firms may need to reduce
traditional advertising, improve ad quality, targeting and differentiation
Price elasticity is much larger than advertising elasticity, to match 1% price cut, firms would need
very large % increase in advertising. Firms sould not cut advertising during recessions. Long term
effects may be stronger.
When advertise more?
- Growth stage products
- durable goods
- european markets
- when using GRPs or TV ( short )
- Using print ( long )
Implications: use correct temporal interval, include endogeneity when appropriate, more
research needed on: online advertising, duration effects, service and durable goods and country
level differences.
Week 2
Consumer behavior: Prosocial consumer behavior refers to actions consumers take that benefit
others or society , like donating, volunteering, buying from ethical brands, or supporting social
causes. Research shows that people don’t behave prosocially for just one reason; instead,
multiple motives can drive these behaviors.
Why consumers behave prosocially: people may act prosocially because:
- extrinsic rewards ( tax benefits, gifts, discounts, recognition for public )
- Reputational benefits ( people like being seen as generous, moral or socially responsible )
- Avoidance of distress ( helping reduces feelings of guilt or discomfort when seeing others
suffer )
These motives can be pure ( altruistic ) or impure ( self interested ) and people judge them
differently.
A charitable credit refers to the social status or moral credit someone earns when others
perceive their motives as altruistic.
- pure motives → more charitable credit: if a donor seems to give out of genuine concert,
people see them more generous
Week 1:
Consumer vs Economic Psychology
● Consumer psychology: Why do people buy things? Relationship: person ↔ product
● Economic psychology: How do people behave economically? Why take risks or make
decisions? Relationship: person ↔ economy
Advertising
● Definition: Paid or unpaid communication by sponsors to inform a target audience.
● Broad view: Competition between brands, informing, funding, employer image.
● Individual view: Inform and impress.
History
● Since the Industrial Revolution, brands differentiate products.
● They aim to create benefits that stand out → Unique Selling Proposition (USP).
Advertising Approaches
● Tell approach: Direct communication.
● Hard sell: Urgent, focuses on immediate buying (short-term).
● Soft sell: Subtle, focuses on trust and long-term relationship.
● Argument-based (rational): Logic, facts.
● Affect-based (emotional): Triggers like joy or fear.
Metrics
● ROI (Return on Investment): Net profit / investment.
○ Example: $1M invested → $2.5M profit.
● AED (Advertising Elasticity of Demand): Change in sales due to income change.
○ Example: Income ↑ 10% → Sales ↑ 1.2% → AED = 0.12
Influences on Advertising
● Short-term vs long-term impact.
● Product life cycle: Introduction → Growth → Maturity → Decline.
● Product type: durable vs non-durable.
Targeting & Segmentation
● Geographical: Location-based
, ● Demographic: Age, income, religion, sex
● Behavioral: Usage patterns (loyalty cards)
● Psychographic: Personal values
○ Big Five personality traits: Openness, Conscientiousness, Extraversion,
Agreeableness, Neuroticism
Implications of Advertising
● It can normalize and idealize behavior.
● It can cause psychological decline (trends) and increase materialism.
● Ethics: Promoting unhealthy products (alcohol, tobacco, drugs).
Fossil Fuel Advertising Bans
● Legal bans (The Hague) on diesel, petrol, aviation, cruise travel ads.
● Reason: Normalizes high-carbon consumption → social norms reinforce harmful behavior.
● Limitations: Greenwashing, reduced demand, barriers removed for sustainable
consumption.
Short vs Long Term Effects
● Short-term: Immediate CO₂ reduction
● Long-term: Gradual shift in social norms → younger generations behave differently
Symbolic Politics & Innovation
● Rejects harmful normalization, sparks public debate.
● Builds public trust in climate action → ripple effect in other countries.
● Can create niches for sustainable alternatives.
Advertising Restrictions & Transitions
● Bans on harmful products can stimulate less harmful innovations.
● Types of bans:
1. Product advertising ban: Harmful product ads prohibited → incentive to innovate.
2. Brand advertising ban: Entire brand ads prohibited → weak/no innovation
incentive.
Example: Norwegian Beer Study
● 1975: Strong advertising ban → low-alcohol beer innovation.
● 1997: Brand advertising ban → increased alcohol-free beer market as niche.
● Other factors: stricter alcohol rules, tech improvements, changing consumer preferences.
● Mechanism transferable to environmental policy: electric cars, renewables.
,Risks & Solutions
● Risk: Greenwashing (fake “green” image without real change)
● Policy solutions: Phase-based regulation, mix of product & brand bans, sustainable
product requirements.
How well does advertising work?
Advertising elasticity= measures % change in sales for a 1% change in advertising
short term elasticity = effect on current period sales
Long term elasticity= effect on current and future sales
Average elasticities
- short term mean= 0.12, short term median= 0.05
- Long term mean= 0.24, long term median= 0.10
- Advertising works, but its effect is small and smaller than we previously believed
Advertising elasticity has declined over time > elasticity decreases more in recent years, because:
- more competition
- more advertising clutter
- internet as alternative information source
- ability to skip ads
Elasticity differences by product type: elasticity is highest → lowest
1. Durable goods
2. pharmaceuticals
3. services
4. food
5. nonfood nondurables
Product life cycle effects: growth stage > mature stage: especially strong for durable goods,
advertising is more effective early in life cycle.
Geographic Differences: Europe > North America in advertising elasticity, because europe
underadvertises: more room for impact, US may be overadvertised → diminishing returns
Advertising type: short term: tv > print, long term: print> TV ( persist longer )
, Elasticity does not decrease during recessions. Long term elasticity is actually higher during
recessions: less advertising clutter, consumers pay more attention, delayed purchases after
recession.
Advertising budgets: because elasticity is small and declining, firms may need to reduce
traditional advertising, improve ad quality, targeting and differentiation
Price elasticity is much larger than advertising elasticity, to match 1% price cut, firms would need
very large % increase in advertising. Firms sould not cut advertising during recessions. Long term
effects may be stronger.
When advertise more?
- Growth stage products
- durable goods
- european markets
- when using GRPs or TV ( short )
- Using print ( long )
Implications: use correct temporal interval, include endogeneity when appropriate, more
research needed on: online advertising, duration effects, service and durable goods and country
level differences.
Week 2
Consumer behavior: Prosocial consumer behavior refers to actions consumers take that benefit
others or society , like donating, volunteering, buying from ethical brands, or supporting social
causes. Research shows that people don’t behave prosocially for just one reason; instead,
multiple motives can drive these behaviors.
Why consumers behave prosocially: people may act prosocially because:
- extrinsic rewards ( tax benefits, gifts, discounts, recognition for public )
- Reputational benefits ( people like being seen as generous, moral or socially responsible )
- Avoidance of distress ( helping reduces feelings of guilt or discomfort when seeing others
suffer )
These motives can be pure ( altruistic ) or impure ( self interested ) and people judge them
differently.
A charitable credit refers to the social status or moral credit someone earns when others
perceive their motives as altruistic.
- pure motives → more charitable credit: if a donor seems to give out of genuine concert,
people see them more generous
