Literature Money and Economic Behavior
Inhoud
Lecture 2: The economic psychology of money
Lea & Webley (2006) – Money as tool, money as drug: the biological
psychology of a strong incentive
Why are people interested in money?
Money is unique, it has no biological value, nevertheless people work harder for it than
almost everything that do have biological relevance.
Biological explanation: a Darwinian perspective. A biological explanation for behavior
implies that the behavior: offers a selective advantage, an advantage in evolutionary
history and is a byproduct of another tendency (neiging) that does offer a selective
advantage.
The nature of the problem: everything that fulfils the three basic functions of money:
1. Means of exchange: exchange it for goods.
2. Unit of account: it assigns value to things.
3. Store of value: you can save it for later use.
The motivation to obtain (verkrijgen) money: money works in human behavior in
the same way as primary motivators:
Incentive: the promise of money encourages action.
Reinforcer: receiving money ensures that behavior will be repeated in the future.
The problem: Normally, strong human motivations have two characteristics:
1. Adaptivity: they contribute directly to survival.
2. Darwinian continuity: similar motivations can be found in other animal species.
Money DOESN’T satisfy either of these criteria. The motivation for money is
therefore NOT DIRECTLY adaptive.
Tool theory and drug theory
Two metaphorically theories to explain the motivation for money biological.
Tool theory: Money is seen as an instrument or tool. It’s a means to an end. Money is
only motivating because it can be exchanged for things that are biologically relevant.
- But according to this theory, money itself has no psychological value. The value
purely lies in what you can buy with it.
= It explains the motivation in situations in which money is used for functional reasons.
Drug theory: Money isn’t only a tool, but also acts as a ‘metaphorical drug’.
Drugs sensu stricto (in the strict sense)-> chemical substances that directly affect the
nervous system. They give a reward signal without there being any biological benefit.
Perceptual drugs-> stimuli that resemble natural stimuli and therefore trigger a response
that is not functional.
Cognitive drugs-> more complex stimuli which mimic situations that stimulate our
instincts without the actual biological situation being present.
Money parasitizes existing functional systems, and drug theory suggest that the
brain responds to money as a direct reward, even when we don’t use it to buy
anything.
= Explains the abnormal phenomena’s, such as people collecting money just to collect.
Theories of money and money motivation
The economic theory of money: traditionally, money has three functions: medium of
exchange, unit of account and store of value. There are two main schools of thought on
how money derives its value:
1
, 1. Commodity money-> money must have intrinsic value or be backed by a
commodity (grondstof).
= A version of the Drug Theory; Gold is desired for their aesthetic beauty (a biological
stimulus), and money based on this ‘borrows’ that motivation.
2. Fiduciary/ fiat money-> money has value because the government designates it
as legal tender (wettig betaalmiddel), for example, to pay taxes.
= Tool theory; money is simply a symbol or token that fulfils a function within a system.
Psychological theories of money
1. Depth psychology (Freud)-> linked money to the ‘anal stage’ of development. He
says that interest in money stems from a displacement of interest in waste
(uitwerpselen). Because money works in a way that ‘tricks’ the brain through a
biological process, it’s a Drug Theory.
2. Operant psychology (Skinner)-> saw money as a generalized token reinforcer. It
derives power from association with unconditional reinforcers (versterkers) (such as
food). Psychologists see this as Tool Theory, radical behaviorism considers it a
Drug Theory because money acts directly as a reinforcer in the brain, without the
need for understanding the cause.
3. Functional autonomy of drives (Allport)-> describes motives that once served a
purpose (doel) but now have become independent. Money was once a means, but
has now become an end =Drug Theory.
4. Cognitive development and money (Piaget)-> looks at how children learn in stages
how money and economic institutions work. Because the focus here is on learning
to use a tool, it’s Tool Theory.
Money in other social sciences
Classical sociology
o Marx: spoke of commodity fetishism, whereby money takes on a life of its
own and masks the human labor behind it. It’s a Drug Theory because of
the misleading nature of it.
o Weber: saw the accumulation of money as essential to capitalism, driven
by Protestant ethics. This leads to the pursuit (zoeken) of money for money’s
sake, which is Drug Theory.
o Simmel: saw money as a symbol that quantifies social relationships. For the
miser, money is the absolute end goal, which is seen as an addictive focus
(Drug Theory).
Modern sociology: emphasizes that money isn’t neutral, but is full of social
meaning. They often see money as a ‘sophisticated instrument’, but many of their
explanations lean toward Drug Theory because the meaning of money becomes
detached from actual economic reality.
The empirical psychology of money: Human interaction with money is often not
purely rational (as a tool), but shows characteristics of Drug Theory. It explains the
exceptional findings.
Perceiving coins: the physical value of an object determines how we see it physically. The
importance of money distorts visual perception. Because money has enormous
psychological status, noise occurs in our visual and cognitive processing. We do not see
the actual size, but the ‘value’ of the object.
Money illusion: occurs when people are guided by the nominal value (the number on the
banknote) rather than the real value. This shows that the psychological impact of money
is partially disconnected from what money can do (so disconnected from the Tool
Theory can’t fully explain why people keep responding to the nominal amounts even
when their money has lost value due to inflation).
Money conservatism: people often strongly resist new forms of money, even if they are
more efficient. This reaction is often disproportionate to economic facts. Drug Theory:
people become emotionally attached to the specific money objects themselves, rather
than seeing them merely as neutral means of exchange.
2
, Money attitudes: attitudes are always multifactorial; power, prestige, fear, and
performance. There is a clear separation between the instrumental aspect/ tool (what you
can buy) and the affective aspect (the feeling money gives you). Money therefore has
both tool and drug-like properties.
Restrictions on money use: social rules, sexuality, and drug quality (money is not a
neutral instrument, it has an ‘emotional charge’ that can contaminate ( vervuilen) or
transform social relationships.
Money in relationships: money is an important predictor of divorce and a source of power
struggles within families. Potent symbol-> it’s not only a means of purchasing goods, but
also a direct symbol of power ad autonomy within a relationship. This direct effect on
power relations points to a drug-like quality.
Sacred and profane uses of money
Sacred money-> things that cannot be bought with money. The fact that people
avoid the use of money in these areas support the Drug Theory; money is
psychologically ‘special’ and not exchangeable for everything.
Profane money-> everyday money that serves as an instrument for functional
purchases.
Money and social status: materialism-> people who seek happiness through possessions
often exhibit self-destructive behavior. This can be seen as a Tool Theory (money as a
means to status) or as a Drug Theory (the pursuit of money for money’s sake).
Money work: people who work with other people’s money experience the ‘magical’ power
of the money they handle. Commodity fetishism-> money is assigned its own, almost
supernatural value.
Money addiction: money can lead to pathological behavior, such as gambling. Miserliness-
> the obsessive accumulation of money without any intention of ever spending it, is the
ultimate proof of the Drug Theory money is completely disconnected from its actual
usefulness.
The Tool Theory isn’t wrong, but inadequate.
A synthetic theory of money
The need for synthesis: we need a combined theory, because money is a tool that can
only be that effective because it functions like a drug. The Tool Theory doesn’t explain the
emotional and irrational force of money. The Drug Theory itself is too incoherent; we must
specifically identify which natural instincts are mimicked by money.
Reciprocal altruism, trade, and money: altruism is a fundamental human instinct trade
evolved from altruism money stimulates the centres in our brain that are responsible
for trade. This explains why we can buy and spend until we drop.
Play and money: people have an exceptionally strong urge to handle and manipulate
physical objects. Coins and bills are physically pleasant to touch; thus money offers a
form of stimulation like that of toys. Because we learn to interact with toys, we are
psychologically ‘preprogrammed’ as adults to understand and find the economic world of
money appealing.
Synthesis
The Tool Theory falls short in explaining the full psychological impact of money.
Money derives its power from the illusion of fulfilling biological instincts.
The motivation for money specifically parasitizes the instincts for reciprocal
(wederkerig) altruism (trade) and object play (play).
3
Inhoud
Lecture 2: The economic psychology of money
Lea & Webley (2006) – Money as tool, money as drug: the biological
psychology of a strong incentive
Why are people interested in money?
Money is unique, it has no biological value, nevertheless people work harder for it than
almost everything that do have biological relevance.
Biological explanation: a Darwinian perspective. A biological explanation for behavior
implies that the behavior: offers a selective advantage, an advantage in evolutionary
history and is a byproduct of another tendency (neiging) that does offer a selective
advantage.
The nature of the problem: everything that fulfils the three basic functions of money:
1. Means of exchange: exchange it for goods.
2. Unit of account: it assigns value to things.
3. Store of value: you can save it for later use.
The motivation to obtain (verkrijgen) money: money works in human behavior in
the same way as primary motivators:
Incentive: the promise of money encourages action.
Reinforcer: receiving money ensures that behavior will be repeated in the future.
The problem: Normally, strong human motivations have two characteristics:
1. Adaptivity: they contribute directly to survival.
2. Darwinian continuity: similar motivations can be found in other animal species.
Money DOESN’T satisfy either of these criteria. The motivation for money is
therefore NOT DIRECTLY adaptive.
Tool theory and drug theory
Two metaphorically theories to explain the motivation for money biological.
Tool theory: Money is seen as an instrument or tool. It’s a means to an end. Money is
only motivating because it can be exchanged for things that are biologically relevant.
- But according to this theory, money itself has no psychological value. The value
purely lies in what you can buy with it.
= It explains the motivation in situations in which money is used for functional reasons.
Drug theory: Money isn’t only a tool, but also acts as a ‘metaphorical drug’.
Drugs sensu stricto (in the strict sense)-> chemical substances that directly affect the
nervous system. They give a reward signal without there being any biological benefit.
Perceptual drugs-> stimuli that resemble natural stimuli and therefore trigger a response
that is not functional.
Cognitive drugs-> more complex stimuli which mimic situations that stimulate our
instincts without the actual biological situation being present.
Money parasitizes existing functional systems, and drug theory suggest that the
brain responds to money as a direct reward, even when we don’t use it to buy
anything.
= Explains the abnormal phenomena’s, such as people collecting money just to collect.
Theories of money and money motivation
The economic theory of money: traditionally, money has three functions: medium of
exchange, unit of account and store of value. There are two main schools of thought on
how money derives its value:
1
, 1. Commodity money-> money must have intrinsic value or be backed by a
commodity (grondstof).
= A version of the Drug Theory; Gold is desired for their aesthetic beauty (a biological
stimulus), and money based on this ‘borrows’ that motivation.
2. Fiduciary/ fiat money-> money has value because the government designates it
as legal tender (wettig betaalmiddel), for example, to pay taxes.
= Tool theory; money is simply a symbol or token that fulfils a function within a system.
Psychological theories of money
1. Depth psychology (Freud)-> linked money to the ‘anal stage’ of development. He
says that interest in money stems from a displacement of interest in waste
(uitwerpselen). Because money works in a way that ‘tricks’ the brain through a
biological process, it’s a Drug Theory.
2. Operant psychology (Skinner)-> saw money as a generalized token reinforcer. It
derives power from association with unconditional reinforcers (versterkers) (such as
food). Psychologists see this as Tool Theory, radical behaviorism considers it a
Drug Theory because money acts directly as a reinforcer in the brain, without the
need for understanding the cause.
3. Functional autonomy of drives (Allport)-> describes motives that once served a
purpose (doel) but now have become independent. Money was once a means, but
has now become an end =Drug Theory.
4. Cognitive development and money (Piaget)-> looks at how children learn in stages
how money and economic institutions work. Because the focus here is on learning
to use a tool, it’s Tool Theory.
Money in other social sciences
Classical sociology
o Marx: spoke of commodity fetishism, whereby money takes on a life of its
own and masks the human labor behind it. It’s a Drug Theory because of
the misleading nature of it.
o Weber: saw the accumulation of money as essential to capitalism, driven
by Protestant ethics. This leads to the pursuit (zoeken) of money for money’s
sake, which is Drug Theory.
o Simmel: saw money as a symbol that quantifies social relationships. For the
miser, money is the absolute end goal, which is seen as an addictive focus
(Drug Theory).
Modern sociology: emphasizes that money isn’t neutral, but is full of social
meaning. They often see money as a ‘sophisticated instrument’, but many of their
explanations lean toward Drug Theory because the meaning of money becomes
detached from actual economic reality.
The empirical psychology of money: Human interaction with money is often not
purely rational (as a tool), but shows characteristics of Drug Theory. It explains the
exceptional findings.
Perceiving coins: the physical value of an object determines how we see it physically. The
importance of money distorts visual perception. Because money has enormous
psychological status, noise occurs in our visual and cognitive processing. We do not see
the actual size, but the ‘value’ of the object.
Money illusion: occurs when people are guided by the nominal value (the number on the
banknote) rather than the real value. This shows that the psychological impact of money
is partially disconnected from what money can do (so disconnected from the Tool
Theory can’t fully explain why people keep responding to the nominal amounts even
when their money has lost value due to inflation).
Money conservatism: people often strongly resist new forms of money, even if they are
more efficient. This reaction is often disproportionate to economic facts. Drug Theory:
people become emotionally attached to the specific money objects themselves, rather
than seeing them merely as neutral means of exchange.
2
, Money attitudes: attitudes are always multifactorial; power, prestige, fear, and
performance. There is a clear separation between the instrumental aspect/ tool (what you
can buy) and the affective aspect (the feeling money gives you). Money therefore has
both tool and drug-like properties.
Restrictions on money use: social rules, sexuality, and drug quality (money is not a
neutral instrument, it has an ‘emotional charge’ that can contaminate ( vervuilen) or
transform social relationships.
Money in relationships: money is an important predictor of divorce and a source of power
struggles within families. Potent symbol-> it’s not only a means of purchasing goods, but
also a direct symbol of power ad autonomy within a relationship. This direct effect on
power relations points to a drug-like quality.
Sacred and profane uses of money
Sacred money-> things that cannot be bought with money. The fact that people
avoid the use of money in these areas support the Drug Theory; money is
psychologically ‘special’ and not exchangeable for everything.
Profane money-> everyday money that serves as an instrument for functional
purchases.
Money and social status: materialism-> people who seek happiness through possessions
often exhibit self-destructive behavior. This can be seen as a Tool Theory (money as a
means to status) or as a Drug Theory (the pursuit of money for money’s sake).
Money work: people who work with other people’s money experience the ‘magical’ power
of the money they handle. Commodity fetishism-> money is assigned its own, almost
supernatural value.
Money addiction: money can lead to pathological behavior, such as gambling. Miserliness-
> the obsessive accumulation of money without any intention of ever spending it, is the
ultimate proof of the Drug Theory money is completely disconnected from its actual
usefulness.
The Tool Theory isn’t wrong, but inadequate.
A synthetic theory of money
The need for synthesis: we need a combined theory, because money is a tool that can
only be that effective because it functions like a drug. The Tool Theory doesn’t explain the
emotional and irrational force of money. The Drug Theory itself is too incoherent; we must
specifically identify which natural instincts are mimicked by money.
Reciprocal altruism, trade, and money: altruism is a fundamental human instinct trade
evolved from altruism money stimulates the centres in our brain that are responsible
for trade. This explains why we can buy and spend until we drop.
Play and money: people have an exceptionally strong urge to handle and manipulate
physical objects. Coins and bills are physically pleasant to touch; thus money offers a
form of stimulation like that of toys. Because we learn to interact with toys, we are
psychologically ‘preprogrammed’ as adults to understand and find the economic world of
money appealing.
Synthesis
The Tool Theory falls short in explaining the full psychological impact of money.
Money derives its power from the illusion of fulfilling biological instincts.
The motivation for money specifically parasitizes the instincts for reciprocal
(wederkerig) altruism (trade) and object play (play).
3
