Science - January 29, 2004

Economics could do with more input from psychology

Consumer and household behaviour cannot be explained by economic theory alone, because this is based on the assumption that consumers make rational choices. Incorporating insights from psychology can help, suggested behavioural economist Professor Gerrit Antonides in his inaugural speech last week.

Butter that lowers cholesterol levels sells better if people think it prevents disease than if they think it will make them healthier. Put more generally, prevention of loss counts for more than the prospect of a potentially equal amount profit. Other seemingly strange forms of behaviour, for instance that people are more attached to things they already possess than desirable items they could acquire, cannot be explained by sticking to the traditional view of neoclassical economics that consumers are rational beings. According to Antonides, an understanding of psychology is necessary to explain consumer behaviour. Choices depend on the context in which they are made.

Antonides is the new chair of Economics of Consumers and Households, and wants to examine the exact influence of context on choices made. Behavioural economics, a combination of economics and psychology, has traditionally focused on individuals. Now Antonides intends to apply this discipline to the household level, for example on the fairness of expenditures within a family. Partners are more likely to agree to a purchase if the other pays for it out of overtime pay rather than from the joint household budget. | Joris Tielens