Psychoeconomics: Interacting Decision Processes and Their Consequences for Economic Performance

• Applicant: Professorin Dr. Anja Achtziger, since 4/2018
• Subject Area: Economic Theory
• Term: from 2012 to 2019
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 215899445

Economics and psychology can both be called “Decision Sciences”. Understanding actual human decision making is essential for both disciplines. Proper models of decision-making are essential for understanding the consequences of economic and social policy, the effect of incentives and education on performance, the functioning of markets, and the allocation properties of economic institutions. The last decades have witnessed a steady approximation of behavioural schools within economics and psychology, as demonstrated e.g. by the rise of the subdiscipline of behavioural economics. In this process, it has been recognized that normative economic models still lack a proper, systematic psychological foundation, while experimental psychology can greatly benefit from the formal approaches that characterises modern economics.The proposed Research Unit brings together researchers from different disciplines in a joint effort to develop an integrative, data-driven understanding of how interacting motives and strategies determine actual human behaviour, how human agents can regulate the resulting decision conflict or learn from it, and what are the economic consequences of decision conflicts and their regulation.The research plan is structured around a basic paradigm which holds the potential to deliver an improved framework for understanding actual human behaviour but which is still absent from mainstream economics. The starting point is given by dual-process theories of human behaviour, which build mainly on insights from cognitive and social psychology. These theories postulate that human behaviour is the result of the interaction of two broad types of decision processes within a human decision-maker’s mind. Automatic processes are thought to be fast, effortless, and requiring no conscious control. Controlled processes are described as slower, not immediate, at least in part consciously reflected upon, and consuming cognitive resources (i.e. being computationally demanding). A naïve analogy can be drawn with the economic duality between rational behaviour and boundedly-rational rules of thumb. Although an identification would be too simplistic, many decision processes that economists would consider closer to a rational paradigm would deserve the broad adjective “controlled” from the point of view of a psychologist. Further, many decision rules which economists would consider a systematic deviation from rationality can be considered to be “more automatic” than the former. Even resisting unnecessary oversimplifications, it is apparent that incorporating the insights of dual-process theories into economics will greatly improve our understanding of economic rationality.Further key elements to be considered within the common research agenda are as follows. First, heterogeneity in behaviour, both across individuals and within an individual. While the former has already been incorporated in standard economic models, the latter is frequently ignored. Second, the regulation of behaviour (“behavioural engineering”). While economists often reduce this point to the design of (monetary) incentives, psychology identifies a host of (cost-neutral) factors and interventions whose interaction with incentives needs to be better understood.We aim to contribute to the development of a common, unified research framework allowing for a psychologically-founded understanding of human economic behaviour, hence bringing decision sciences one step forward. Since our approach is data-driven, the first step towards this objective is the unification of very different research conventions and methodologies in economics and psychology. For instance, the integration of methods from psychology (response times, electrophysiological measurements, use of cognitive load and similar manipulations) into experimental economics goes beyond the current standards in behavioural economics. Conversely, it is still rare for experiments in psychology to make systematic use of economic incentives. We anticipate that the second step will be the development of appropriate formal-analytical models of human behaviour incorporating insights from microeconomics, game theory, and social and cognitive psychology, and which will necessarily expand the current frameworks available in both disciplines.

• DFG Programme: Research Units
• Subproject of: FOR 1882: Psychoeconomics. Interacting Decision Processes and their Consequences for Economic Performance
• Ehemaliger Antragsteller: Professor Dr. Carlos Alós-Ferrer, until 4/2018