Consumer and Economic Psychology – Summary Slides
Week 2 – Economic Judgement & Words Speak Louder Than Actions
How do we make economic judgements using reason and applying logic
• Maximizing the utility
• Systematic thinking
• Applying logic rules
• Understanding references
How do we actually make decisions?
• Prospect theory:
- Loss aversion we like getting things but we dislike losing things even more (losing is
around 2.25 times stronger than gaining)
- Reference points if gain: risk aversion, if loss: risk seekings
Efficient information processors
• Heuristics shortcuts or rules of thumb, simple rules for quick decisions
• Biases a judgement that does not follow logic, usually the outcome of a heuristic
Different heuristics/biases:
• Availability heuristic: we make decisions based on easy to access information (recent,
frequent, extreme, negative)
• Anchoring heuristic: an initial value is used as a reference point, the assessment of the value
of a product is affected by the anchor. It happens even when the anchor is irrelevant for the
judgement itself.
• Framing: people's decisions and judgments are influenced by how information is presented,
emphasizing either positive or negative aspects.
• Representativeness heuristic: people judge the probability of an event or category based on
how similar it is to a prototype or stereotype
• Ignoring base rates: tendency to overlook or undervalue the general statistical probabilities of
an event or characteristic (the "base rate") when making judgments
• Sunk cost fallacy: people continue investing time, money, or effort into a decision or project,
even when it is no longer rational to do so, because they want to avoid "wasting" the
resources they've already committed.
• Confirmation bias: the tendency to seek out, interpret, and remember information that
confirms one's preexisting beliefs or expectations, while ignoring or discounting evidence that
contradicts them.
• Hindsight heuristic: the tendency to perceive past events as more predictable or inevitable
after they have occurred, often accompanied by the belief that "I knew it all along."
Endowment and marketing the endowment effect refers to the tendency for people to place a
higher value on goods, services, or possessions simply because they own them, compared to if they
did not. likelihood of object retention
• Loss aversion a loss has a greater psychological impact than a gain
1
, • Psychological ownership
- Non-transferable positive valence of the object
- Self-referential memory effect
Week 3 – Powerty and irrational behaviour & social inequality
Overview of Social Inequality
1. Concepts of Social Inequality
o Classic Sociological Theories:
Marx: Inequality based on ownership of production means (owners vs.
employees).
Weber: Multiple sources of inequality, including:
Economic Situation: Income and wealth.
Social Status: Respect from others.
Power: Ability to achieve goals.
o Dimensions of Inequality:
Economic (income and wealth).
Education (formal qualifications).
o Indicators:
Social class (e.g., working, middle).
Socioeconomic status (SES): A mix of occupation, income, and education,
often measured on a continuous scale.
2. Impact of Income and Education:
o High income with low education or vice versa leads to different consumption
behaviors.
o Education provides access to higher-income jobs but is also a standalone dimension
of inequality, contributing to respect and status.
Importance of Education
1. Education as a Key Factor:
o Influences job status, wages, and personal relationships (e.g., marriage partners).
o Related to political and cultural attitudes.
o Drives societal divides:
Values (community vs. individualism).
Lifestyle choices (media, sports, food preferences).
2. Meritocracy and Education:
2
Week 2 – Economic Judgement & Words Speak Louder Than Actions
How do we make economic judgements using reason and applying logic
• Maximizing the utility
• Systematic thinking
• Applying logic rules
• Understanding references
How do we actually make decisions?
• Prospect theory:
- Loss aversion we like getting things but we dislike losing things even more (losing is
around 2.25 times stronger than gaining)
- Reference points if gain: risk aversion, if loss: risk seekings
Efficient information processors
• Heuristics shortcuts or rules of thumb, simple rules for quick decisions
• Biases a judgement that does not follow logic, usually the outcome of a heuristic
Different heuristics/biases:
• Availability heuristic: we make decisions based on easy to access information (recent,
frequent, extreme, negative)
• Anchoring heuristic: an initial value is used as a reference point, the assessment of the value
of a product is affected by the anchor. It happens even when the anchor is irrelevant for the
judgement itself.
• Framing: people's decisions and judgments are influenced by how information is presented,
emphasizing either positive or negative aspects.
• Representativeness heuristic: people judge the probability of an event or category based on
how similar it is to a prototype or stereotype
• Ignoring base rates: tendency to overlook or undervalue the general statistical probabilities of
an event or characteristic (the "base rate") when making judgments
• Sunk cost fallacy: people continue investing time, money, or effort into a decision or project,
even when it is no longer rational to do so, because they want to avoid "wasting" the
resources they've already committed.
• Confirmation bias: the tendency to seek out, interpret, and remember information that
confirms one's preexisting beliefs or expectations, while ignoring or discounting evidence that
contradicts them.
• Hindsight heuristic: the tendency to perceive past events as more predictable or inevitable
after they have occurred, often accompanied by the belief that "I knew it all along."
Endowment and marketing the endowment effect refers to the tendency for people to place a
higher value on goods, services, or possessions simply because they own them, compared to if they
did not. likelihood of object retention
• Loss aversion a loss has a greater psychological impact than a gain
1
, • Psychological ownership
- Non-transferable positive valence of the object
- Self-referential memory effect
Week 3 – Powerty and irrational behaviour & social inequality
Overview of Social Inequality
1. Concepts of Social Inequality
o Classic Sociological Theories:
Marx: Inequality based on ownership of production means (owners vs.
employees).
Weber: Multiple sources of inequality, including:
Economic Situation: Income and wealth.
Social Status: Respect from others.
Power: Ability to achieve goals.
o Dimensions of Inequality:
Economic (income and wealth).
Education (formal qualifications).
o Indicators:
Social class (e.g., working, middle).
Socioeconomic status (SES): A mix of occupation, income, and education,
often measured on a continuous scale.
2. Impact of Income and Education:
o High income with low education or vice versa leads to different consumption
behaviors.
o Education provides access to higher-income jobs but is also a standalone dimension
of inequality, contributing to respect and status.
Importance of Education
1. Education as a Key Factor:
o Influences job status, wages, and personal relationships (e.g., marriage partners).
o Related to political and cultural attitudes.
o Drives societal divides:
Values (community vs. individualism).
Lifestyle choices (media, sports, food preferences).
2. Meritocracy and Education:
2
