Money & Financial Behavior
Master Economic Psychology
October 2020
,Please note that this summary was made by 6 people, so the writing style may sometimes
vary. This summary includes the following articles:
Money and materialism
Lea, S. E. G., & Webley, P. (2006). Money as a tool, money as a drug: The biological psychology of a strong incentive.
Behavioral and Brain Sciences, 29, 161-176.
Please note that the commentaries to the article by Lea and Webley are NOT part of the assigned literature.
Page, C. (1992). A history of conspicuous consumption: Meaning, measure, and morality of materialism. Advances in
Consumer Research, 8, 82-87.
Greed and Corruption
Hsee, C. K., Zhang, J., Cai, C. F., & Zhang, S. (2013). Overearning. Psychological Science, 24, 852-859.
Mussel, P., Reiter, A. F. M., Osinsky, R., & Hewig, J. (2014). State- and trait-greed, its’ impact on risky decision-making,
and underlying neural mechanisms. Social Neuroscience, 10, 126-134.
Frey, B. S., & Jegen, R. (2001). Motivation crowding theory. Journal of Economic Surveys, 15, 589-611.
Poverty and wealth
Shah, A. J., Mullainathan, S., & Shafir, E. (2012). Some consequences of having too little. Science, 338, 682-685.
Gino, F., & Pierce, L. (2009). The abundance effect: Unethical behavior in the presence of wealth. Organizational
Behavior and Human Decision Processes, 109, 142-155.
Piff, P. K., Stancato, D. M., Côté, S., Mendoza-Denton, R., & Keltner, D. (2012). Higher social class predicts increased
unethical behavior. PNAS, 109, 4086-4091.
Inequality
Oishi, S., & Kesebir, S. (2015). Income inequality explains why economic growth does not always translate to an increase
in happiness. Psychological Science, 26, 1630-1638.
Oishi, S., Schimmack, U., & Diener, E. (2012). Progressive taxation and the subjective well-being of nations.
Psychological Science, 23, 86-92.
Taxation
Alm, J., Kirchler, E., & Muehlbacher, S. (2012). Combining Psychology and Economics in the Analysis of Compliance:
From Enforcement to Cooperation. Economic Analysis &
Policy, 42, 133-151.
Kirchler, E., Hoelzl, E., & Wahl, I. (2008). Enforced versus voluntary tax compliance: The ''slippery slope'' framework.
Journal of Economic Psychology, 29, 210-225.
Saving
Thaler, R.H. & Benartzi, S. (2004). Save more tomorrow: Using behavioral economics to increase employee saving.
Journal of Political Economy, 112, 164-187.
Webley, P. & Nyhus, E.K. (2006). Parents' influence on children's future orientation and saving. Journal of Economic
Psychology, 27, 140-164.
, Week 1 - Money as a tool, money as drug: The biological psychology of a strong
incentive - Stephen E. G. Lea and Paul Webley
1. Why are people interested in money?
1.1 Biological explanation
Sociobiological answer to why people do something: (a) doing it confers a selective
advantage, or (b) it does not confer a selective advantage now, but did at some point in
history of Homo Sapiens, or (c) the tendency to do it is a by-product of some other
tendency, which does/did confer to an advantage
1.2 The nature of money
In this article the three basic functions of money are:
1. As a medium of exchange
2. Unit of account
3. A store of value
1.3 The motivation to obtain money
Motivation to obtain money enters in human behavior:
- Money as an incentive: people are more likely to perform the action if they are aware
that it leads to obtaining money
- Money as a reinforcer: actions that in the past lead to a person receiving money, are more
likely to be repeated
1.4 The problem
Two characteristic properties in human motivations:
1. Adaptiveness: human motivations direct people to or from stimuli of significance for
individual survival → hunger, thirst, need for social companions, sexual drives and
parental care 2. Darwinian continuity: motives are the same, or derived from related
species of animals (does not mean motives have to be identical) → we have no trouble
understanding where complex human motivations come from evolutionary speaking
→ the way instincts play out in actual human behavior is a function of culture and individual
experiences → flexible
The motivation to acquire money has no parallels in the behavior of other animals (1),
and cannot be derived evolutionary speaking (2) → could be culturally derived
Is there a biological reason why money is such a powerful incentive?
2. Tool Theory and Drug Theory
Money does not have an immediate adative origin → two classes of theory that can be
applied to the problem of money motivation:
1. Tool Theory
2. Drug Theory
2.1 Tool Theory
Economists: when two people exchange scarce resources, the exchange can increase the
wealth of both parties → but money is not an incentive itself: it is an incentive only because
,it can be exchanged for goods and services → if money is a strong incentive, it is only
strong, because the goods and services it provides are strong incentives
According to tool theory: we only need a psychology of money in a limited sense: we only
have to understand the job that money does and the human cognitive system that enables
us to use it → money is seen as a literal tool, like a screwdriver (e.g. money mediates
between our need to exchange commodities, and limited evaluating power of our brains)
Tool theory is instrumental: money is a means to an end
2.2 Drug Theory
2.2.1. Drugs sensu stricto
Drug → by mimicking the action of some natural substance, it produces an abnormal
response without being part of an ordered, functional sequence
2.2.2. Perceptual drugs
Perceptual drugs: drug-like action, but not directly on the central nervous system →
evolutionary speaking these stimuli are functionless, but within the life of individual
organisms, they provide gratification
2.2.3. Cognitive drugs
→ effect depends on what we know we understand, not on what we perceive (e.g.
pornographic texts)
2.2.4. The drug metaphor and Drug Theory
Drug: a stimulus that is of no biological significance in itself, but which has motivational
properties because it produces the same neural, behavioural, or psychological effect as
some other stimulus that is biologically significant
Money can act like a natural incentive at a cognitive level and its motivational power
is at least partly explained by this
Difference between tool theory and drug theory: tool theory suggests money is only
interested because of the biological advantages it can get you, whereas drug theory
suggests that money itself has a rewarding effect.
3. Theories of money and money motivation
3.1 The economic theory of money
Three primary functions:
1. Medium of exchange
2. Unit of account
3. Store of value
All it matters for money to function, is that all members of society accept that it functions
Chartal money: non-convertible money gets its value by becoming government fiat → Tool
Theory Metalism: convertible money → Drug Theory: drug-like mimicking property of money
(gold functions as symbol of desirable things/ beautiful and durable objects)
,3.2 Psychological theories of money
3.2.1. Depth psychology: Freud explanation for the money motive was developmental:
interest in coins comes from interest in faeces → durg theory: money acts on the
developing human brain in the same way as faeces
3.2.2. Operant psychology: If money is the conditioned stimulus, and paired to enough
unconditioned reinforcers, it becomes independent of deprivation of any of them → drug
theories
3.2.4. Cognitive development and money: Piaget: understanding of money in
phases/stages, children learn how to operate within the economy → tool theory
3.3 Money in other social sciences
3.3.1. Classic sociology of money:
Marx: commodity fetishism, money is an instrument of alienation → drug theory Weber: the
tool use of money is disallowed, money can only be sought for its own sake → drug theory
3.3.2. Modern sociology of money:
Social interaction perspective → (i) money anonymizes social interaction <-> (ii)
money has social meaning and links things and people together
4. The empirical psychology of money
The perception of money → kids overestimate the size of coins → drug theory: value of
money gives it a special states, which interferes with normal perceptual/cognitive processing
Money conservatism → e.g. rejection of dollar coin → when currencies lose their value
because of economic/political change, people lose interest in them (tool theory)
→ new forms of money are in general not less functional than old forms, but they need
to show substantial advantages before people will adopt them → people get attached to
the money objects itself (drug theory)
Results show that money has instrumental as well as affective aspects → this means that
tool and drug theory work alongside
Money is often unacceptable:
- As a gift: money as a gift is different in cultures → there is a difference between
market exchanges and gift exchanges in the use of money
- In a sexual relationship
→ giving money has the belief that you move from the social exchange atmosphere to
the economic sphere, so there are restrictions on when to use money:
- Drug theory: money is psychologically special and acts in other ways than just as a
neutral medium of exchange
- Tool theory: instrumental use does not have to be universal, but it is also socially not
accepted, so restrictions are more drug theory
4.8 Money and social status: Materialism: tendency to interpret wealth as a sign of status
and the extent to which value is attributed to objects on the basis of their financial cost →
high in materialism: people seek happiness through wealth and possessions → elaborated
tool theory: money is used to assess or obtain social status and happiness
4.10 Money addiction: there is no evidence yet that money addiction exist (there is
compulsive gambling and compulsive buying)
, 4.11 Summary: Tool Theory is not enough, money has a value and an emotional charge to
it that is not predicted by its economic use
5. A synthetic theory of money
5.1 The need for synthesis
Drug theory: money acts on the brain in ways that mimic more natural incentives, not just
by being an instrument for access
Tool theory: instrumentality of money is fundamentally important → the only thing all forms
of money have in common, is their function
→ it would be foolish to only use one theory
- Tool theory is useful, because most important is the function
- But: money is too successful, that it can not only be a tool, but also a drug
5.2 Reciprocal altruism, trade, and money
Prime use for money is to facilitate trade (money theory might be built on trade theory): -
Reciprocal altruism: it is only sustainable if an organism that gives up fitness at one moment
can expect to gain fitness in the future → motivation to trade, the bigger the social
environment, the safer a person is against social and environmental threats ( → bigger
social environment also means more people to trade with)
- Tool: instant return of good (in form of money)
- Drug: giving the illusion of trade and reciprocation even when it is absent
- Money from different sources is used in different ways → because of different
social meanings (different symbols)
5.3 Play and money
Money as a drug in object play → money may be a drug partly because it provides
something of the same kind of stimulation as a plaything (= instinct to play with objects that
can be held in the hand) → having learned playthings as a kid, we are better equipped to
manage plaything-like money as adults
Money can mimic the satisfaction of both the instinct to play and the instinct to trade
5.4 Synthesis
Money motivation is built on other strong human instincts. Three conclusions:
1. Tool theory of money is inadequate
2. Inadequacies of tool theory can be overcome by introducing drug theory →
money derives some of its incentive power from providing the illusion of fulfilment of
certain instincts 3. Instinctive power of money can come from reciprocal altruism and
object play Also important: cultural dominance
Master Economic Psychology
October 2020
,Please note that this summary was made by 6 people, so the writing style may sometimes
vary. This summary includes the following articles:
Money and materialism
Lea, S. E. G., & Webley, P. (2006). Money as a tool, money as a drug: The biological psychology of a strong incentive.
Behavioral and Brain Sciences, 29, 161-176.
Please note that the commentaries to the article by Lea and Webley are NOT part of the assigned literature.
Page, C. (1992). A history of conspicuous consumption: Meaning, measure, and morality of materialism. Advances in
Consumer Research, 8, 82-87.
Greed and Corruption
Hsee, C. K., Zhang, J., Cai, C. F., & Zhang, S. (2013). Overearning. Psychological Science, 24, 852-859.
Mussel, P., Reiter, A. F. M., Osinsky, R., & Hewig, J. (2014). State- and trait-greed, its’ impact on risky decision-making,
and underlying neural mechanisms. Social Neuroscience, 10, 126-134.
Frey, B. S., & Jegen, R. (2001). Motivation crowding theory. Journal of Economic Surveys, 15, 589-611.
Poverty and wealth
Shah, A. J., Mullainathan, S., & Shafir, E. (2012). Some consequences of having too little. Science, 338, 682-685.
Gino, F., & Pierce, L. (2009). The abundance effect: Unethical behavior in the presence of wealth. Organizational
Behavior and Human Decision Processes, 109, 142-155.
Piff, P. K., Stancato, D. M., Côté, S., Mendoza-Denton, R., & Keltner, D. (2012). Higher social class predicts increased
unethical behavior. PNAS, 109, 4086-4091.
Inequality
Oishi, S., & Kesebir, S. (2015). Income inequality explains why economic growth does not always translate to an increase
in happiness. Psychological Science, 26, 1630-1638.
Oishi, S., Schimmack, U., & Diener, E. (2012). Progressive taxation and the subjective well-being of nations.
Psychological Science, 23, 86-92.
Taxation
Alm, J., Kirchler, E., & Muehlbacher, S. (2012). Combining Psychology and Economics in the Analysis of Compliance:
From Enforcement to Cooperation. Economic Analysis &
Policy, 42, 133-151.
Kirchler, E., Hoelzl, E., & Wahl, I. (2008). Enforced versus voluntary tax compliance: The ''slippery slope'' framework.
Journal of Economic Psychology, 29, 210-225.
Saving
Thaler, R.H. & Benartzi, S. (2004). Save more tomorrow: Using behavioral economics to increase employee saving.
Journal of Political Economy, 112, 164-187.
Webley, P. & Nyhus, E.K. (2006). Parents' influence on children's future orientation and saving. Journal of Economic
Psychology, 27, 140-164.
, Week 1 - Money as a tool, money as drug: The biological psychology of a strong
incentive - Stephen E. G. Lea and Paul Webley
1. Why are people interested in money?
1.1 Biological explanation
Sociobiological answer to why people do something: (a) doing it confers a selective
advantage, or (b) it does not confer a selective advantage now, but did at some point in
history of Homo Sapiens, or (c) the tendency to do it is a by-product of some other
tendency, which does/did confer to an advantage
1.2 The nature of money
In this article the three basic functions of money are:
1. As a medium of exchange
2. Unit of account
3. A store of value
1.3 The motivation to obtain money
Motivation to obtain money enters in human behavior:
- Money as an incentive: people are more likely to perform the action if they are aware
that it leads to obtaining money
- Money as a reinforcer: actions that in the past lead to a person receiving money, are more
likely to be repeated
1.4 The problem
Two characteristic properties in human motivations:
1. Adaptiveness: human motivations direct people to or from stimuli of significance for
individual survival → hunger, thirst, need for social companions, sexual drives and
parental care 2. Darwinian continuity: motives are the same, or derived from related
species of animals (does not mean motives have to be identical) → we have no trouble
understanding where complex human motivations come from evolutionary speaking
→ the way instincts play out in actual human behavior is a function of culture and individual
experiences → flexible
The motivation to acquire money has no parallels in the behavior of other animals (1),
and cannot be derived evolutionary speaking (2) → could be culturally derived
Is there a biological reason why money is such a powerful incentive?
2. Tool Theory and Drug Theory
Money does not have an immediate adative origin → two classes of theory that can be
applied to the problem of money motivation:
1. Tool Theory
2. Drug Theory
2.1 Tool Theory
Economists: when two people exchange scarce resources, the exchange can increase the
wealth of both parties → but money is not an incentive itself: it is an incentive only because
,it can be exchanged for goods and services → if money is a strong incentive, it is only
strong, because the goods and services it provides are strong incentives
According to tool theory: we only need a psychology of money in a limited sense: we only
have to understand the job that money does and the human cognitive system that enables
us to use it → money is seen as a literal tool, like a screwdriver (e.g. money mediates
between our need to exchange commodities, and limited evaluating power of our brains)
Tool theory is instrumental: money is a means to an end
2.2 Drug Theory
2.2.1. Drugs sensu stricto
Drug → by mimicking the action of some natural substance, it produces an abnormal
response without being part of an ordered, functional sequence
2.2.2. Perceptual drugs
Perceptual drugs: drug-like action, but not directly on the central nervous system →
evolutionary speaking these stimuli are functionless, but within the life of individual
organisms, they provide gratification
2.2.3. Cognitive drugs
→ effect depends on what we know we understand, not on what we perceive (e.g.
pornographic texts)
2.2.4. The drug metaphor and Drug Theory
Drug: a stimulus that is of no biological significance in itself, but which has motivational
properties because it produces the same neural, behavioural, or psychological effect as
some other stimulus that is biologically significant
Money can act like a natural incentive at a cognitive level and its motivational power
is at least partly explained by this
Difference between tool theory and drug theory: tool theory suggests money is only
interested because of the biological advantages it can get you, whereas drug theory
suggests that money itself has a rewarding effect.
3. Theories of money and money motivation
3.1 The economic theory of money
Three primary functions:
1. Medium of exchange
2. Unit of account
3. Store of value
All it matters for money to function, is that all members of society accept that it functions
Chartal money: non-convertible money gets its value by becoming government fiat → Tool
Theory Metalism: convertible money → Drug Theory: drug-like mimicking property of money
(gold functions as symbol of desirable things/ beautiful and durable objects)
,3.2 Psychological theories of money
3.2.1. Depth psychology: Freud explanation for the money motive was developmental:
interest in coins comes from interest in faeces → durg theory: money acts on the
developing human brain in the same way as faeces
3.2.2. Operant psychology: If money is the conditioned stimulus, and paired to enough
unconditioned reinforcers, it becomes independent of deprivation of any of them → drug
theories
3.2.4. Cognitive development and money: Piaget: understanding of money in
phases/stages, children learn how to operate within the economy → tool theory
3.3 Money in other social sciences
3.3.1. Classic sociology of money:
Marx: commodity fetishism, money is an instrument of alienation → drug theory Weber: the
tool use of money is disallowed, money can only be sought for its own sake → drug theory
3.3.2. Modern sociology of money:
Social interaction perspective → (i) money anonymizes social interaction <-> (ii)
money has social meaning and links things and people together
4. The empirical psychology of money
The perception of money → kids overestimate the size of coins → drug theory: value of
money gives it a special states, which interferes with normal perceptual/cognitive processing
Money conservatism → e.g. rejection of dollar coin → when currencies lose their value
because of economic/political change, people lose interest in them (tool theory)
→ new forms of money are in general not less functional than old forms, but they need
to show substantial advantages before people will adopt them → people get attached to
the money objects itself (drug theory)
Results show that money has instrumental as well as affective aspects → this means that
tool and drug theory work alongside
Money is often unacceptable:
- As a gift: money as a gift is different in cultures → there is a difference between
market exchanges and gift exchanges in the use of money
- In a sexual relationship
→ giving money has the belief that you move from the social exchange atmosphere to
the economic sphere, so there are restrictions on when to use money:
- Drug theory: money is psychologically special and acts in other ways than just as a
neutral medium of exchange
- Tool theory: instrumental use does not have to be universal, but it is also socially not
accepted, so restrictions are more drug theory
4.8 Money and social status: Materialism: tendency to interpret wealth as a sign of status
and the extent to which value is attributed to objects on the basis of their financial cost →
high in materialism: people seek happiness through wealth and possessions → elaborated
tool theory: money is used to assess or obtain social status and happiness
4.10 Money addiction: there is no evidence yet that money addiction exist (there is
compulsive gambling and compulsive buying)
, 4.11 Summary: Tool Theory is not enough, money has a value and an emotional charge to
it that is not predicted by its economic use
5. A synthetic theory of money
5.1 The need for synthesis
Drug theory: money acts on the brain in ways that mimic more natural incentives, not just
by being an instrument for access
Tool theory: instrumentality of money is fundamentally important → the only thing all forms
of money have in common, is their function
→ it would be foolish to only use one theory
- Tool theory is useful, because most important is the function
- But: money is too successful, that it can not only be a tool, but also a drug
5.2 Reciprocal altruism, trade, and money
Prime use for money is to facilitate trade (money theory might be built on trade theory): -
Reciprocal altruism: it is only sustainable if an organism that gives up fitness at one moment
can expect to gain fitness in the future → motivation to trade, the bigger the social
environment, the safer a person is against social and environmental threats ( → bigger
social environment also means more people to trade with)
- Tool: instant return of good (in form of money)
- Drug: giving the illusion of trade and reciprocation even when it is absent
- Money from different sources is used in different ways → because of different
social meanings (different symbols)
5.3 Play and money
Money as a drug in object play → money may be a drug partly because it provides
something of the same kind of stimulation as a plaything (= instinct to play with objects that
can be held in the hand) → having learned playthings as a kid, we are better equipped to
manage plaything-like money as adults
Money can mimic the satisfaction of both the instinct to play and the instinct to trade
5.4 Synthesis
Money motivation is built on other strong human instincts. Three conclusions:
1. Tool theory of money is inadequate
2. Inadequacies of tool theory can be overcome by introducing drug theory →
money derives some of its incentive power from providing the illusion of fulfilment of
certain instincts 3. Instinctive power of money can come from reciprocal altruism and
object play Also important: cultural dominance
