Psychology and the economy

Psychology and the economy

What is the economy, and how can psychology impact it?

• Economy = the production/consumption of goods + services

• Psychology and the economy = psychological theories are applied by govs + companies to improve how the economy functions eg:

  • A psychologically healthy + well-educated population = more productive + produces more/higher quality goods/services

  • Can increase demand for goods/services through psychological understanding + manipulation of desire (eg: effective marketing)

  • Tax revenue (pays for public services eg: NHS) depends on taxing income → need more people employed + paying taxes

Psychology and the economy

What are ways that psychology has effected the economy?

• Maternal deprivation

• Social influence

• Neurotransmitters

• Memory

• Framing effect

• Availability heuristic

Psychology and the economy

What is the ‘framing effect’?

• When something is framed as a gain, people are more likely to do it/take it, than if the same thing was framed as a loss

• An example of irrational thinking

Psychology and the economy

What is the ‘Availability heuristic’?

• Uses schemas - people make assumptions based off of memories that are quickly available to them, and what they see in front of them, to make a judgment

• An example of irrational thinking

Who researched irrational thinking?

Kahenman

Two examples of irrational thinking in relation the economic psych:

• the availability heuristic

• the framing effect

Example of the ‘Framing effect’

people are more likely to buy a tooth paste if it says on the package '4/5 dentists would recommend' rather than '1/5 dentists wouldn't recommend'

What study researches the ‘framing effect’?

Tversky and Kahneman (1986)

Tversky and Kahneman (1986) procedure:

• Asked Ps to choose b/w two treatments that were gonna be used on 600 patients w/ a deadly disease.

• 2 groups were given the same facts about the success/failures of the treatments but they were framed differently:

  • 1 - told treatment A would result in 400 deaths, and that treatment B would result in a 33% chance of saving everyone, and a 66% that all 600 would die

  • 2 - told treatment A would save 200 lives and B 33% chance no one would die, and a 66% of saving no one

Outcome of Tversky and Kahneman (1986):

• In 1 (with positive framing) 72% selected treatment A

• In 2 (with negative framing) 22% selected treatment A

Example of ‘the availability heuristic:

people overestimate the likelihood of a plane accident, because they are more easily remembered when making a probability judgment due to media stories

AO3 points

• practical application

• social change

• Memory/EWT

• attachment

• mental health

• biopsych

AO3 - Practical application

Economist Richard Layard (2014) said Khaneman's work on irrational thinking had transformed business + his ideas have been applied to a variety of things:

• Decision making in juries

• Treatment of mental health problems

• Financial advice

• Government programmes

• Etc

AO3 - social change

• Campaign on drink driving used social norms to change attitudes

• Similar ideas have been used to reduce social stereotypes + smoking w/ benefits to society

• Consequence = reduces cost of these unhealthy behaviours to the NHS + society generally

• BUT this approach=  limited to behaviour moderated by social criteria

AO3 - memory/EWT

• Cognitive interview has improved no. of accurate info collected

• Police/court time used efficiently

• Economic benefits bcs reduces expense of wrongful arrests

AO3 - attachment

• We understand now the importance of emotional care in early development (eg: Bowlby + related research)

• UNICEF stated that 'deprivation that stems from lack of care and nurture … can have just as detrimental effect on brain development as lack of food'

• Led to healthcare policies that improve children's chances of becoming productive members of society -> improving economy

AO3 - Mental health

• McCrone et al (2008) estimated mental health in England costs approx - £22.5 billion/year

• Includes spending in health/social care but NOT criminal justice system + loss of employment

• Commented on use of drugs vs psychotherapies - 'the number of people receiving medication provides a much greater economic gain than psychotherapies, may may produce similar benefits compared to medication but are far more expensive'

• Evidence-based research on effective drug therapies is important in reducing cost and helping people return to work -> the economy

AO3 - Biopsych

• Neuroscience - the possibility of revolutionising our understanding of the human brain

• An American gov report suggests that this may have practical economic benefits in the area of 'smart' machines (eg: machines that will think like humans (NIH, 2013) - means making money saving intelligent machines to deal w/ eg: Qs over the phone or recognising faces at airports