The Cambridge handbook of psychology and economic behaviour [electronic resource]

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The Cambridge Handbook of

Psychology and Economic Behaviour

Psychologists have been observing and interpreting economic behav￾iour for at least fifty years, and the last decade, in particular, has

seen an escalated interest in the interface between psychology and

economics. The Cambridge Handbook of Psychology and Economic

Behaviour is a valuable reference resource dedicated to improving

our understanding of the economic mind and economic behaviour.

Employing empirical methods – including laboratory experiments,

field experiments, observations, questionnaires and interviews – the

Handbook covers aspects of theory and method, financial and con￾sumer behaviour, the environment and biological perspectives. With

contributions from distinguished scholars from a variety of countries

and backgrounds, the Handbook is an important step forward in the

improvement of communications between the disciplines of psychol￾ogy and economics. It will appeal to academic researchers and grad￾uates in economic psychology and behavioural economics.

Alan Lewis is Professor of Economic Psychology in the Depart￾ment of Psychology at the University of Bath. He is a former editor

of the Journal of Economic Psychology and his books include Morals,

Markets and Money: Ethical, Green and Socially Responsible Invest￾ing (2002) and The New Economic Mind: The Social Psychology

of Economic Behaviour (with Paul Webley and Adrian Furnham,

1995).

The Cambridge Handbook of

Psychology and Economic

Behaviour

Edited by

ALAN LEWIS

CAMBRIDGE UNIVERSITY PRESS

Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo

Cambridge University Press

The Edinburgh Building, Cambridge CB2 8RU, UK

First published in print format

ISBN-13 978-0-521-85665-2

ISBN-13 978-0-511-39346-4

© Cambridge University Press 2008

2008

Information on this title: www.cambridge.org/9780521856652

This publication is in copyright. Subject to statutory exception and to the provision of

relevant collective licensing agreements, no reproduction of any part may take place

without the written permission of Cambridge University Press.

Cambridge University Press has no responsibility for the persistence or accuracy of urls

for external or third-party internet websites referred to in this publication, and does not

guarantee that any content on such websites is, or will remain, accurate or appropriate.

Published in the United States of America by Cambridge University Press, New York

www.cambridge.org

eBook (EBL)

hardback

This book is first and foremost dedicated to my wife Sandie Lewis.

I would also like to dedicate it to all my past, current and future

economic psychology students.

Contents

List of figures page ix

List of tables xiii

Notes on the contributors xv

Part I Introduction, theory and method

1. Introduction 3

Alan Lewis

2. Theory and method in economics and psychology 9

Denis Hilton

Part II Finance

3. The economic psychology of the stock market 39

Karl-Erik Warneryd ¨

4. Stock prices: insights from behavioral finance 64

Werner F. M. De Bondt

5. Inter-temporal choice and self-control: saving and borrowing 105

Paul Webley and Ellen K. Nyhus

6. Financial decisions in the household 132

Carole Burgoyne and Erich Kirchler

7. Corporate social responsibility: the case of long-term and

responsible investment 155

Danyelle Guyatt

Part III Consumer behaviour in the private sector

8. Consumption and identity 181

Russell Belk

9. Wealth, consumption and happiness 199

Aaron Ahuvia

vii

viii Contents

10. Comparing models of consumer behaviour 227

Gerrit Antonides

Part IV Consumer behaviour in the public sector

11. Lay perceptions of government economic activity 255

Simon Kemp

12. How big should government be? 281

John G. Cullis and Philip R. Jones

13. Integrating explanations of tax evasion and avoidance 304

Valerie Braithwaite and Michael Wenzel

Part V Environment

14. Sustainable consumption and lifestyle change 335

Tim Jackson

15. Environmentally significant behavior in the home 363

Paul C. Stern

16. Economic and psychological determinants of car ownership

and use 383

Tommy Garling and Peter Loukopoulos ¨

17. Environmental morale and motivation 406

Bruno S. Frey and Alois Stutzer

18. Contingent valuation as a research method:

environmental values and human behaviour 429

Clive L. Spash

Part VI Biological perspectives

19. Neuroeconomics: what neuroscience can

learn from economics 457

Terry Lohrenz and P. Read Montague

20. Evolutionary economics and psychology 493

Ulrich Witt

21. Evolutionary psychology and economic psychology 512

Stephen E. G. Lea

Index 527

Figures

2.1 Indifference curves for theory preferences in economists page 13

and psychologists. Reprinted from European Economic

Review, 46, Rabin, M. ‘A perspective on psychology and

economics’, pp. 657–85, Copyright 2002, with

permission from Elsevier

5.1 Preferences under constant discount rates: stable

preferences. Reprinted from Ainslie, G. Picoeconomics:

The Strategic Interaction of Successive Motivational

States within the Person, Copyright 1992, with

permission from Cambridge University Press 110

5.2 Preferences when discount rate changes as a function of

time: preference reversal. Reprinted from Ainslie, G.

Picoeconomics: The Strategic Interaction of Successive

Motivational States within the Person, Copyright 1992,

with permission from Cambridge University Press 110

5.3 Savings motives in the UK 120

9.1 Income and happiness in the US, 1972–4. Reprinted

from the National Opinion Research Center’s General

Social Survey, with permission 201

12.1 Gaining from the ‘nanny state’ 284

12.2 Multiple happiness equilibria 299

13.1 The wheel of social alignment of taxpayers 315

14.1 A livelihoods framework: assets, strategies and

outcomes. Redrawn from Chambers, R. and Conway, G.

Sustainable rural livelihoods: practical concepts for the

21st century. IDS discussion paper 296, 1992, with

permission from the Institute of Development Studies 341

14.2 UK GDP vs. life-satisfaction 1973–2002. Data on GDP

from UK National Accounts. Data on life-satisfaction

from Veenhoven, R. World database of happiness:

www2.eur.nl/fsw/research/happiness 344

14.3 The social-symbolic project of identity formation.

Adapted by the author from Elliott, R. and

ix

x List of figures

Wattanasuwan, K. 1998. ‘Brands as resources for the

symbolic construction of identity’, International Journal

of Advertising 172, pp. 131–45 348

14.4 Lifestyles and social practices. Adapted from

Environmental Politics, 9(1), Spaargaren, G. and van

Vliet, B. ‘Lifestyles, consumption and the environment:

the ecological modernization of domestic consumption’,

pp. 50–77, Copyright 2000, with permission from

Taylor & Francis Ltd, www.informaworld.com 352

14.5 A new model for behaviour change policy. Redrawn

from Securing the Future: Delivering UK Sustainable

Development Strategy – Defra 2005
C Crown copyright,

material is reproduced with the permission of the

Controller of HMSO and Queen’s Printer for Scotland 356

15.1 A schematic representation of variables in the

value–belief–norm theory of environmentalism.

Reprinted from Stern, P. “Toward a coherent theory of

environmentally significant behavior,” Journal of Social

Issues, 56, p. 412, Copyright 2000, with permission from

Blackwell Publishing 376

16.1 Determinants of travel 387

16.2 Theoretical framework. Adapted from Transport Policy,

9, G¨arling, T. et al. ‘A conceptual analysis of the impact

of travel demand management on private car use’,

pp. 59–70, Copyright 2002, with permission from

Elsevier 393

16.3 Factors assumed to affect political feasibility 397

19.1 Diagram of forces and influences forging

neuroeconomics 459

19.2 Area of VMPFC whose activity scales linearly with

subjects’ preference for Coke as revealed in an

anonymous taste test. Reprinted from Neuron 44,

McClure, S. M., Li, J., Tomlin, D., Cypert, K. S.,

Montague, L. S., Montague, P. R., “Neural correlates of

behavioral preference for culturally familiar drinks,”

Copyright 2004, pp. 379–87, with permission from

Elsevier 460

19.3 Neural activity correlating with expected value and

prediction error. From Yacubian, J., Gl¨ascher, J.,

Schroeder, K., Sommer, T., Braus, D. F., and B¨uchel, C.

(2006). Dissociable systems for gain- and loss-related

value predictions and error of prediction in the human

List of figures xi

brain. Reproduced from Journal of Neuroscience 26, pp.

9530–7 Copyright 2006 by the Society for Neuroscience 463

19.4 Neural activity related to different discounting systems.

From McClure, S. M., Laibson, D., Loewenstein, G.,

Cohen, J. D. (2004). “Separate neural systems value

immediate and delayed monetary awards,” Science 306,

pp. 503–7. Reprinted with permission from AAAS 466

19.5 fMRI evidence for TD-error signal in ventral striatum.

Reprinted from Neuron 38, McClure et al., “Temporal

prediction errors in a passive learning task activate

human striatum,” pp. 339–46, Copyright 2003, with

permission from Elsevier; and Neuron 38, O’Doherty

et al., “Temporal difference models and reward-related

learning in the human brain,” Copyright 2003,

pp. 329–37, with permission from Elsevier 467

19.6 Dissociable roles for dorsal and ventral striatum in an

instrumental conditioning task. From O’Doherty, J. P.,

Dayan, P., Schultz, J., Deichmann, R., Friston, K., Dolan,

R. (2004). “Dissociable roles of dorsal and ventral

striatum in instrumental conditioning,” Science 304,

pp. 452–4. Reprinted with permission from AAAS 469

19.7 Regressions of firing rate of dopamine neurons versus

reward history. Reprinted from Neuron 47, Bayer, H. M.,

and Glimcher, P. W., “Midbrain dopamine signals encode

a quantitative reward prediction error signal,” Copyright

2005, pp. 129–41, with permission from Elsevier 470

19.8 Brain regions active in exploratory trials as determined

by computational model of behavior. Reprinted by

permission from Macmillan Publishers Ltd: Nature 441,

pp. 876–9. Daw, N. D., O’Doherty, J. P., Dayan, P.,

Seymour, B., and Dolan, R. J., “Cortical substrates for

exploratory decisions in humans,” copyright 2006 473

19.9 Results from the repeated trust game. From King-Casas,

B., Tomlin, D., Anen, C., Camerer, C. F., Quartz, S. R.,

and Montague, P. R. (2005). “Getting to know you:

reputation and trust in a two-person economic

exchange,” Science 308, pp. 78–83. Reprinted with

permission from AAAS 475

19.10 “Tequila worm” figures of agency map across various

conditions. From Tomlin, D., Kayali, M. A., King-Casas,

B., Anen, C., Camerer, C. F., Quartz, S. R, and Montague,

P. R. (2006), “Agent-specific responses in the cingulate

xii List of figures

cortex during economic exchanges,” Science 312, pp.

1047–50. Reprinted with permission from AAAS 477

19.11 Activation in the one-shot ultimatum game. From Sanfey,

A. G., Rilling J. K., Aronson, J. K., Nystrom, L. E., and

Cohen, J. D. (2003), “The neural basis of economic

decision-making in the ultimatum game,” Science 300,

pp. 1755–8. Reprinted with permission from AAAS 478

19.12 Activation in the investor’s brain after unfair trustee

responses. From De Quervain, D. J. F., Fischbacher, U.,

Treyer, V., Schellhammer, M., Schnyder, U., Buck, A.,

and Fehr, E. (2004), “The neural basis of altruistic

punishment,” Science 305, pp. 1254–8. Reprinted with

permission from AAAS 479

19.13 Activation in nucleus accumbens for the unfair–fair

contrast in the painful condition for males only.

Reprinted by permission from Macmillan Publishers Ltd:

Nature, Singer et al., “Empathetic neural responses are

modulated by the perceived fairness of others,” 439,

pp. 466–9, copyright 2006 480

19.14 Coronal slice of MNI single-subject brain used in SPM2,

y = 2.17 485

19.15 Sagittal slice of MNI single-subject brain used in SPM2,

x = −5.25 SNc at x = −6.87 486

Tables

2.1 Three levels of scientific question and associated page 15

scientific disciplines

6.1 Classification of tactics. From Kirchler, E. et al. 2001.

Conflict and decision making in close relationships.

Reprinted with permission from The Psychology Press, a

member of the Taylor & Francis Group 139

6.2 Money management at the time of the wedding and

about one year later. Reprinted from Journal of

Economic Psychology, 28(2), Burgoyne, C. et al.,

‘Money management systems in early marriage: factors

influencing change and stability’, pp. 214–28, Copyright

2007, with permission from Elsevier 144

6.3a Ownership and financial systems at time 1 145

6.3b Ownership and financial systems time 2 145

7.1 Corporate equity holders by sector, end of 2000

(percentage of total). Reprinted from Davis, E. P.

Institutional investors, corporate governance and the

performance of the corporate sector, working paper: The

Pensions Institute, Birkbeck College, London, Copyright

2002, with permission 160

7.2 Size of the SRI investment market. Reprinted from

Sparkes, R. ‘Ethical investment: whose ethics, which

investment?’ Business Ethics: A European Review,

10(3), pp. 194–205, Copyright 2001, with permission

from Blackwell Publishing 166

10.1 Overview of consumer models and their applications 229

11.1 Percentage of respondents favouring less, the same or

more expenditure on six categories of US public

spending. Reprinted from Public Choice, 45(2), 1985,

pp. 139–53, ‘Interrelationships among public spending

preferences: a micro analysis’, Ferris, J. M., with kind

permission from Springer Science and Business Media 263

12.1 Contrasting views of theory and individuals 285

xiii