What is economic psychology?

Centre for Decision Research

Rob Ranyard is a freelance researcher and Visiting Professor of Leeds University Business School affiliated to the Centre for Decision Research (CDR). He is President-Elect of the International Association for Research into Economic Psychology (IAREP), and has previously held various research and lecturing posts, including Professor of Psychology at the University of Bolton from 2001 to 2014. He has undertaken psychological research using a range of methods and has published widely in economic psychology and decision research. Most recently, Rob co-authored and edited Economic Psychology, published as part of the British Psychological Society textbook series.

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So what is economic psychology? In the introduction to our book, Economic psychology, I describe it as the science of economic mental life and behaviour. The book presents a present-day overview of the field across twenty eight chapters, written by experts in the field. Several chapters focus on personal and household decision making, for example:

  • decisions about saving for a rainy day or for retirement
  • borrowing to improve today's lifestyle
  • issues of managing tax affairs and financial risks.

In other chapters, we cover the fascinating aspects of economic mental life, such as: people's thoughts and feelings about material possessions, money, prices, the economy, inflation.

Taking broader perspectives on economic psychology, later chapters look at life-span development from childhood to old age, and societal issues such as charitable giving and pro-environmental behaviour. Throughout the book, practical and policy implications for supporting economic decision making are addressed.

This publication was written with three groups of reader in mind: researchers in both economic psychology and behavioural economics, students in such disciplines, and general readers.

Why is economic psychology important?

Economic psychology is a branch of applied psychology defined by Stephen Lea and co-authors as “the study of how individuals affect the economy and how the economy affects individuals”. One way that individuals influence the economy is by their expectations: when expectations are positive people are more likely to spend and borrow, but when negative they are more inclined to save. For those managing the economy, it is therefore important to understand and predict people’s expectations and perceptions of, for example, inflation.

Understanding how the economy affects individuals and households is equally important. For example, the burden of high value loans, in relation to household income, is a major problem for too many these days, and the economic environment has a significant impact on borrowing behaviour. Easy access to credit has intensified debt problems for some, while exclusion from the mainstream credit market has left others with only high-cost credit options. Although research to date has informed these issues, more work is needed to resolve them.

The International Association for Research into Economic Psychology (IAREP)

In 1976 a group of twelve economic psychologists gathered in Tilburg, The Netherlands, to discuss their research. This was the first of a series of annual conferences of IAREP. IAREP conferences have continued to attract researchers from across the world, and the society’s Journal of Economic Psychology, founded in 1981, continues to grow in visibility and impact. Having participated in the society and published in the journal since the mid-eighties, I was pleased and honoured to be elected President-Elect of IAREP at the 2017 conference.

The society’s website explains how students and researchers can join the society and gives further information on past and future conferences and workshops. In July 2018, the 43rd IAREP-SABE Conference will take place in London (SABE is the Society for the Advancement of Behavioral Economics, also created in 1982).

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The views expressed in this article are those of the author and may not reflect the views of Leeds University Business School or the University of Leeds.