Week 1 - Thinking like an economist
Regarding every article: ‘learn more about the psychological processes
underlying economic decisions’ → introduction, theory, general setup of studies,
general findings, main conclusion
Thinking like an economist; micro economics
Microeconomics is the branch of economics that studies individual economic units, such as
consumers, firms, and markets. Microeconomics helps explain everyday economic
decisions, like why gas prices fluctuate, how companies set prices, and what influences
consumer purchasing behavior.
Onderwerpen te behandelen → hier dingen over weten; dit zijn grote lijnen:
Limited information processing
Dealing with uncertainty
(In)stability of preferences
Difficulty of predicting
Role of emotions
Importance of self-interest
Fairness
Altruism
Meeting 1 – Rational economic decision making according to economists
Van Dijk - Thinking and deciding like an economist
Decision-making according to economists (micro-economics)
“Rational economic man”:
1. knows his preferences
2. greedy ‘more is better’ → maximizing utility
3. knows budget constraints → succeeds in maximizing utility given budget
constraints
4. selfish; does not care about others
5. does not have emotions
Thus economists think economic behaviour is a rational process.
According to economists, consumers know their preferences; they know what they like, and
their preferences dont change. Their preferences can be illustrated in the indifference curve.
The indifference curve illustrates all combinations of goods that are equally attractive to the
decision-maker.
,Indifference curve: (i.e. iso-utility curve)
● each curve illustrates combinations that are equally attractive to the decision-maker
● the higher the curve the better → more is preferred to less
● convex to the origin: ‘the more CD’s you have, the the less you are
prepared to give up books to get more CDs’ → to move from 2 to 4 CDs
prepared to give up 3 books, but to move from 4 to 6 CDs only prepared to
give up 1 book.
● negative curve always; more of one means less of the other
Budget line
● all combinations on, or below the budget line can be obtained
● aiming for maximum utility, thus aiming to be on the highest indifference curve
according to the budget line = where budget line and indifference curve clash
Assumptions to be tested; Limited information processing, Dealing with uncertainty,
(In)stability of preferences, Difficulty of predicting, Role of emotions, Importance of self-
interest, Fairness, Altruism
Hoyer et al. (2022) – Dispositional greed
Greed → more is better (i.e. maximizing utility)
Key findings:
● more greedy, lower psychological satisfaction
● greed and self-interest are different things
● greed higher household income; might be beneficial economic outcomes
● unlike greed, self-interest does not correlate to higher household income
● men and younger people are more greedy
Take away message:
● more greedy, does not mean more experienced utility (satisfaction)
● those who score higher on greed report to be less satisfied
● outcomes are not the same for every individual
Independent variable
- greedy (i.e. tendency towards desire for more)
- self-interest (i.e. lower prosocial tendencies)
, Social value orientation: persons preference on how to allocate resources between
the self and another person; how much weight does a person attach to the welfare of
others in relation to their own.
Dependent variable:
- economic outcomes (personal, household)
- evolutionary outcomes
- psychological outcomes (life satisfaction)
Research questions:
- What is the relationship between dispositional greed and economic, evolutionary, and
psychological life outcomes?
- How does greed compare to self-interest in terms of its impact on these life
outcomes?
Method:
- correlational, cross sectional study
- survey based
Iyengar & Lepper (2000) – Dealing with information: Choice overload
Many choices may appear attractive, but are overwhelming
Key findings:
● Too much choice is demotivating → extensive selection 24+ less likely to
make choice compared to smaller selection 6+
● Smaller choice set leads to higher satisfaction → chocolates
● Choice overload impairs motivation and engagement → spent more time
examining large choice sets, but less likely to commit to a choice and
feeling more regret after making choice
● Too many options leads to decision paralysis → avoid making decisions
Take away message:
● Limiting choice can enhance decision making and satisfaction (increased regret)
● although we are attracted to more choice, having more choice is not always better
● too much choice leads to lower satisfaction, not being able to make a decision, and
demotivation
Independent variables
- number of choices available (small set 6, large set 24+)
Dependent variables
- likelihood of making a choice
- time spent considering options
- satisfaction with choice made
- regret after choosing or enjoyment of selected option
Regarding every article: ‘learn more about the psychological processes
underlying economic decisions’ → introduction, theory, general setup of studies,
general findings, main conclusion
Thinking like an economist; micro economics
Microeconomics is the branch of economics that studies individual economic units, such as
consumers, firms, and markets. Microeconomics helps explain everyday economic
decisions, like why gas prices fluctuate, how companies set prices, and what influences
consumer purchasing behavior.
Onderwerpen te behandelen → hier dingen over weten; dit zijn grote lijnen:
Limited information processing
Dealing with uncertainty
(In)stability of preferences
Difficulty of predicting
Role of emotions
Importance of self-interest
Fairness
Altruism
Meeting 1 – Rational economic decision making according to economists
Van Dijk - Thinking and deciding like an economist
Decision-making according to economists (micro-economics)
“Rational economic man”:
1. knows his preferences
2. greedy ‘more is better’ → maximizing utility
3. knows budget constraints → succeeds in maximizing utility given budget
constraints
4. selfish; does not care about others
5. does not have emotions
Thus economists think economic behaviour is a rational process.
According to economists, consumers know their preferences; they know what they like, and
their preferences dont change. Their preferences can be illustrated in the indifference curve.
The indifference curve illustrates all combinations of goods that are equally attractive to the
decision-maker.
,Indifference curve: (i.e. iso-utility curve)
● each curve illustrates combinations that are equally attractive to the decision-maker
● the higher the curve the better → more is preferred to less
● convex to the origin: ‘the more CD’s you have, the the less you are
prepared to give up books to get more CDs’ → to move from 2 to 4 CDs
prepared to give up 3 books, but to move from 4 to 6 CDs only prepared to
give up 1 book.
● negative curve always; more of one means less of the other
Budget line
● all combinations on, or below the budget line can be obtained
● aiming for maximum utility, thus aiming to be on the highest indifference curve
according to the budget line = where budget line and indifference curve clash
Assumptions to be tested; Limited information processing, Dealing with uncertainty,
(In)stability of preferences, Difficulty of predicting, Role of emotions, Importance of self-
interest, Fairness, Altruism
Hoyer et al. (2022) – Dispositional greed
Greed → more is better (i.e. maximizing utility)
Key findings:
● more greedy, lower psychological satisfaction
● greed and self-interest are different things
● greed higher household income; might be beneficial economic outcomes
● unlike greed, self-interest does not correlate to higher household income
● men and younger people are more greedy
Take away message:
● more greedy, does not mean more experienced utility (satisfaction)
● those who score higher on greed report to be less satisfied
● outcomes are not the same for every individual
Independent variable
- greedy (i.e. tendency towards desire for more)
- self-interest (i.e. lower prosocial tendencies)
, Social value orientation: persons preference on how to allocate resources between
the self and another person; how much weight does a person attach to the welfare of
others in relation to their own.
Dependent variable:
- economic outcomes (personal, household)
- evolutionary outcomes
- psychological outcomes (life satisfaction)
Research questions:
- What is the relationship between dispositional greed and economic, evolutionary, and
psychological life outcomes?
- How does greed compare to self-interest in terms of its impact on these life
outcomes?
Method:
- correlational, cross sectional study
- survey based
Iyengar & Lepper (2000) – Dealing with information: Choice overload
Many choices may appear attractive, but are overwhelming
Key findings:
● Too much choice is demotivating → extensive selection 24+ less likely to
make choice compared to smaller selection 6+
● Smaller choice set leads to higher satisfaction → chocolates
● Choice overload impairs motivation and engagement → spent more time
examining large choice sets, but less likely to commit to a choice and
feeling more regret after making choice
● Too many options leads to decision paralysis → avoid making decisions
Take away message:
● Limiting choice can enhance decision making and satisfaction (increased regret)
● although we are attracted to more choice, having more choice is not always better
● too much choice leads to lower satisfaction, not being able to make a decision, and
demotivation
Independent variables
- number of choices available (small set 6, large set 24+)
Dependent variables
- likelihood of making a choice
- time spent considering options
- satisfaction with choice made
- regret after choosing or enjoyment of selected option
