Yes, this is Economic Psychology! EP1

For video version go to:

A Great Controversy between Two Great Forces
Economists and psychologists are at an impasse! This disagreement is due to different assumptions about human nature, and economic decision-making in particular. Economists generally assume that people are rational, autonomous, utility maximizers, and self-interested (Henrich et al., 2005). However, psychologists assume that we are more irrational, contextually situated, utility compromising, and naturally social (Hoelzl & Kirchler, 2010).

This conflict has developed into a controversy between two constructed prototypes of human nature, i.e. paradigms, which herein are referred to as homo economicus and homo psychologicus. As paradigms, they are both incommensurate, self-defensive, and are vying for power. Both must avoid cherry picking, caricaturing, and other dishonorable reactions (Staley, 1999). Aristotle used to say that truth is located in the golden middle-road between two positions, but such heuristics can also lead to errors if one opts for the median between one big and one smaller flaw.

Why does this matter? It is essential to touch upon this divergence, since it has a great impact on the process of negotiation and cooperation. The issue is that many companies are unaware of the errors in the economist’s model of man, making it propagate costly fallacies, and stay strategically undifferentiated from the competition. We can identify various points on which economics and psychology differ, which corroborate the ones introduced above. An economist views the world through googles where everything has a monetary metric as referent, while psychologists instead see thoughts thus superimposed; i.e. economics is reductionist while psychology is more holistic. Level of analysis is also a point of departure, with economists focused on the macro- and psychologist on the micro-level. Even gender issues might play a role, in that women are overrepresented in psychology programs, while males are likewise in economics (Moakler & Kim, 2014; Zafar, 2013).

On so many levels, economics and psychology seem antithetical. Yet, due to deficiencies in both, a new field arose which presents economics and psychology as a Venn diagram where the overlapping area is the domain of economic psychology. Still, paradigmatic tensions abide. A big deficiency in economics is its inability to prevent financial crises/defaults on the micro- and macroeconomic level. This has made it more introspective and self-critical, with various academians remunerating whether they have played a role in propagating detrimental ideas and creating self-fulfilling prophecies (Ghoshal, 2005; W. Long, Malhotra, & Murnighan, 2011).

Psychologists have thence ushered in to use their models of human behavior, in order to explain why these issues arise and how we can prevent them: increasing predictive validity on various economic phenomena. The psychology of the marketplace is however not a completely alien topic, but rigorous scientific findings on the bounded nature of our rationality has made psychology’s role more credible. Our brain process information either fast (intuitive/system 1) or slowly (rational/system 2), and the former applies heuristics, biases and emotions to speed up the process (D. Kahneman, 2012). We simply do not have the mental capacity for a close analysis 24/7, but the disturbing thing is that system 1 can be in the driver seat during critical corporate decision-making; like e.g. a manager “in love” with an idea.

The economicus/psychologicus conflict often manifest itself in the workplace. The departments with most conflicts are Finance and HR, with the former questioning the financial value of the latter, and the latter thinking the former are little more than bean-counters (Cascio & Boudreau, 2011). Some (Towers Watson & Forbes Insights, 2011) argue that there will be a tighter cooperation between Finance and HR in the future, and it is hence important to have a hybrid perspective in the form of economic psychology.

Food for Thought! How rational is decision-making in your company?

For more go to:

Science (entire EP-series):

Adubato, S. (2008). Keys to effective in-house training and seminars (Vol. 21, pp. 15): Journal Multimedia.

Aknin, L. B., Barrington-Leigh, C. P., Dunn, E. W., Helliwell, J. F., Burns, J., Biswas-Diener, R., . . . Nyende, P. (2013). Prosocial spending and well-being: Cross-cultural evidence for a psychological universal. Journal of Personality & Social Psychology, 104(4), 635-652. doi: 10.1037/a0031578

Amabile, T., Fisher, C. M., & Pillemer, J. (2014). IDEO’s culture of helping. Harvard Business Review, 92(1/2), 54-61.

Aragon, I. B., & Valle, R. S. (2013). Does training managers pay off? International Journal of Human Resource Management, 24(8), 1671-1684. doi: 10.1080/09585192.2012.725064

Balliet, D., Mulder, L. B., & Van Lange, P. A. M. (2011). Reward, punishment, and cooperation: A meta-analysis. Psychological Bulletin, 137(4), 594-615. doi: 10.1037/a0023489

Balliet, D., & Van Lange, P. A. M. (2013). Trust, conflict, and cooperation: A meta-analysis. Psychological Bulletin, 139(5), 1090-1112. doi: 10.1037/a0030939

Barber, W. J. (2009). History of Economic Thought. Middletown, CT, USA: Wesleyan University Press.

BI Norwegian Business School. (2014). GRA 2245 Economic Psychology. Retrieved 13.11, 2014, from

Biel, A., & Thøgersen, J. (2007). Activation of social norms in social dilemmas: A review of the evidence and reflections on the implications for environmental behaviour. Journal of Economic Psychology, 28(1), 93-112.

Blume, B. D., Ford, J. K., Baldwin, T. T., & Huang, J. L. (2010). Transfer of training: A meta-analytic review. Journal of Management, 36(4), 1065-1105.

Boone, C., & De Brabander, B. (1999). The impact of personality on behavior in five Prisoner’s Dilemma game. Journal of Economic Psychology, 20(3), 343.

Bögenhold, D. (2013). Social network analysis and the sociology of economics: Filling a blind spot with the idea of social embeddedness. American Journal of Economics & Sociology, 72(2), 293-318. doi: 10.1111/ajes.12005

Caputo, A. (2013). A literature review of cognitive biases in negotiation processes. International Journal of Conflict Management (Emerald), 24(4), 374-398. doi: 10.1108/IJCMA-08-2012-0064

Cascio, W., & Boudreau, J. (2011). Investing in People: Financial Impact of Human Resource Initiatives (2 ed.). New Jersey: Financial Times Press.

Castells, M. (2010). The Rise of the Network Society: The Information Age: Economy, Society, and Culture. MA, USA: Blackwell Publishing.

Cheng, E. W. L., & Hampson, I. (2008). Transfer of training: A review and new insights. International Journal of Management Reviews, 10(4), 327-341. doi: 10.1111/j.1468-2370.2007.00230.x

Choi, D.-W. (2010). Shared metacognition in integrative negotiation. International Journal of Conflict Management (Emerald), 21(3), 309-333. doi: 10.1108/10444061011063199

Colquitt, J. A., LePine, J. A., & Noe, R. A. (2000). Toward an integrative theory of training motivation: A meta-analytic path analysis of 20 years of research. Journal of Applied Psychology, 85(5), 678-707.

Cross, R., Gray, P., Gerbasi, A., & Assimakopoulos, D. (2012). Building engagement from the ground up: How top organizations leverage networks to drive employee engagement. Organizational Dynamics, 41(3), 202-211.

De Cremer, D., & Leonardelli, G. J. (2003). Cooperation in social dilemmas and the need to belong: The moderating effect of group size. Group Dynamics: Theory, Research, and Practice, 7(2), 168-174. doi: 10.1037/1089-2699.7.2.168

De Dreu, C. K. W., & Nauta, A. (2009). Self-interest and other-orientation in organizational behavior: Implications for job performance, prosocial behavior, and personal initiative. Journal of Applied Psychology, 94(4), 913-926.

Dear, P. (2009). Revolutionizing the Sciences: European Knowledge and its Ambitions, 1500-1700. USA: Princeton University Press.

Dimotakis, N., Conlon, D. E., & Ilies, R. (2012). The mind and heart (literally) of the negotiator: Personality and contextual determinants of experiential reactions and economic outcomes in negotiation. Journal of Applied Psychology, 97(1), 183-193. doi: 10.1037/a0025706

Duncan, A., & O’Brian, S. (2014). 10 must-have ingredients for a coaching program. Training, 51(3), 64-65.

Epley, N., & Schroeder, J. (2014). Mistakenly seeking solitude. Journal of Experimental Psychology: General, 143(5), 1980-1999. doi: 10.1037/a0037323

Ferris, G. R., Liden, R. C., Munyon, T. P., Summers, J. K., Basik, K. J., & Buckley, M. R. (2009). Relationships at work: Toward a multidimensional conceptualization of dyadic work relationships. Journal of Management, 35(6), 1379-1403.

Franklin, S. V., Sayre, E. C., & Clark, J. W. (2014). Traditionally taught students learn; actively engaged students remember. American Journal of Physics, 82(8), 798-801. doi: 10.1119/1.4890508

Ghoshal, S. (2005). Bad management theories are destroying good management practices. Academy of Management Learning & Education, 4(1), 75-91. doi: 10.5465/AMLE.2005.16132558

Gillespie, N., & Dietz, G. (2009). Trust repair after an organization-level failure. The Academy of Management Review, 34(1), 127-145.

Goldstein, D. G., Johnson, E. J., Herrmann, A., & Heitmann, M. (2008). Nudge your customers toward better choices. Harvard Business Review, 86(12), 99-105.

Goldstein, E. (2010). Cognitive Psychology: Connecting Mind, Research and Everyday Experience. CA, USA: Cengage Learning.

Grant, A. M. (2012). Giving time, time after time: Work design and sustained employee participation in corporate volunteering. The Academy of Management Review, 37(4), 589-615.

Grant, A. M., & Berg, J. M. (2012). Prosocial motivation. In K. S. Cameron & G. M. Spreitzer (Eds.), The Oxford Handbook of Positive Organizational Scholarship. (pp. 28-44). New York, NY, US: Oxford University Press.

Grant, A. M., & Berry, J. W. (2011). The necessity of others is the mother of invention: Intrinsic and prosocial motivations, perspective taking, and creativity. Academy of Management Journal, 54(1), 73-96. doi: 10.5465/AMJ.2011.59215085

Grant, A. M., & Gino, F. (2010). A little thanks goes a long way: Explaining why gratitude expressions motivate prosocial behavior. Journal of Personality and Social Psychology, 98(6), 946-955. doi: 10.1037/a0017935

Hamlin, J. K., & Wynn, K. (2011). Young infants prefer prosocial to antisocial others. Cognitive Development, 26(1), 30-39.

Han, I., Kwon, S., Bae, J., & Park, K. (2012). When are integrative tactics more effective? The moderating effects of moral identity and the use of distributive tactics. International Journal of Conflict Management (Emerald), 23(2), 133-150. doi: 10.1108/10444061211218258

Hawes, J. M., & Fleming, D. E. (2014). Recognizing distributive or integrative negotiation opportunities in marketing channels: The conceptualization of adaptive negotiations. Journal of Marketing Channels, 21(4), 279-287. doi: 10.1080/1046669X.2014.905402

Henrich, J., Boyd, R., Bowles, S., Camerer, C., Fehr, E., Gintis, H., . . . Tracer, D. (2005). ‘Economic man’ in cross-cultural perspective: Behavioral experiments in 15 small-scale societies. Behavioral and Brain Sciences, 28(6), 795-855.

Hinds, P. J., & Cramton, C. D. (2014). Situated coworker familiarity: How site visits transform relationships among distributed workers. Organization Science, 25(3), 794-814. doi: doi:10.1287/orsc.2013.0869

Hoelzl, E., & Kirchler, E. (2010). The Journal of Economic Psychology enters its fourth decade. Journal of Economic Psychology, 31(6), 841-842.

Hofstede, G. (1984). Culture’s Consequences: International Differences in Work-Related Values. California, USA: SAGE Publications.

Huczynski, A. A., & Buchanan, D. A. (2013). Organizational Behaviour (8 ed.). UK: Pearson Education Limited.

Hurley, R. F., Gillespie, N., Ferrin, D. L., & Dietz, G. (2013). Designing trustworthy organizations. MIT Sloan Management Review, 54(4), 75-82.

Hüffmeier, J., Freund, P. A., Zerres, A., Backhaus, K., & Hertel, G. (2014). Being tough or being nice? A meta-analysis on the impact of hard- and softline strategies in distributive negotiations. Journal of Management, 40(3), 866-892. doi: 10.1177/0149206311423788

Johnson, E. J., & Goldstein, D. (2011). Do defaults save lives? In D. A. Moore (Ed.), Managerial Decision Making (pp. 216-217): International Library of Critical Writings on Business and Management. Cheltenham, U.K. and Northampton, Mass.: Elgar. (Reprinted from: [2003]).

Kahneman, D. (2011). Maps of Bounded Rationality: Psychology for Behavioral Economics. In D. A. Moore (Ed.), Managerial Decision Making (pp. 87-113): International Library of Critical Writings on Business and Management. Cheltenham, U.K. and Northampton, Mass.: Elgar. (Reprinted from: [2003]).

Kahneman, D. (2012). Thinking, Fast and Slow. London: Penguine Books.

Konrath, S. (2014). The power of philanthropy and volunteering. In F. A. Huppert & C. L. Cooper (Eds.), Interventions and policies to enhance wellbeing (Vol. VI). (pp. 387-426): Wiley-Blackwell.

Long, C. P., Bendersky, C., & Morrill, C. (2011). Fairness monitoring: Linking managerial controls and fairness judgments in organizations. Academy of Management Journal, 54(5), 1045-1068. doi: 10.5465/amj.2011.0008

Long, W., Malhotra, D., & Murnighan, J. K. (2011). Economics education and greed. Academy of Management Learning & Education, 10(4), 643-660. doi: 10.5465/amle.2009.0185

Lyons, S., & Kuron, L. (2014). Generational differences in the workplace: A review of the evidence and directions for future research. Journal of Organizational Behavior, 35, S139-S157. doi: 10.1002/job.1913

Macfarlane, J., & Mayer, B. (2005). What theory? How collaborative problem-solving trainers use theory and research in training and teaching. Conflict Resolution Quarterly, 23(2), 259-276. doi: 10.1002/crq

Marks, M., & Harold, C. (2011). Who asks and who receives in salary negotiation. Journal of Organizational Behavior, 32(3), 371-394. doi: 10.1002/job.671

Masi, C. M., Chen, H.-Y., Hawkley, L. C., & Cacioppo, J. T. (2011). A meta-analysis of interventions to reduce loneliness. Personality & Social Psychology Review (Sage Publications Inc.), 15(3), 219-266. doi: 10.1177/1088868310377394

Meiners, E. B., & Boster, F. J. (2012). Integrative process in manager–employee negotiations: Relational and structural factors. Journal of Applied Communication Research, 40(2), 208-228.

Meloni, M. (2014). How biology became social, and what it means for social theory. Sociological Review, 62(3), 593-614. doi: 10.1111/1467-954x.12151

Mesmer-Magnus, J., & Viswesvaran, C. (2010). The role of pre-training interventions in learning: A meta-analysis and integrative review. Human Resource Management Review, 20(4), 261-282. doi: 10.1016/j.hrmr.2010.05.001

Milhem, W., Abushamsieh, K., & Pérez Aróstegui, M. N. (2014). Training strategies, theories and types. Journal of Accounting, Business & Management, 21(1), 12-26.

Moakler, M. W., & Kim, M. M. (2014). College major choice in STEM: Revisiting confidence and demographic factors. Career Development Quarterly, 62(2), 128-142. doi: 10.1002/j.2161-0045.2014.00075.x

Nguyen, T. N., Truong, Q., & Buyens, D. (2010). The relationship between training and firm performance: A literature review. Research & Practice in Human Resource Management, 18(1), 36-45.

Piscitelli, T. (2007). A successful training seminar. HVACR Distribution Business, 48-51.
Pollard, K. A., & Blumstein, D. T. (2011). Social group size predicts the evolution of individuality. Current Biology, 21(5), 413-417. doi:

Reinfeld, H. (2004). Method to the madness of training seminars. Business Journal (Central New York), 18(45), 10.

Scott Morton, F., Silva-Risso, J., & Zettelmeyer, F. (2011). What matters in a price negotiation: Evidence from the U.S. auto retailing industry. Quantitative Marketing & Economics, 9(4), 365-402. doi: 10.1007/s11129-011-9108-1

Scott, W. R., & Davis, G. F. (2007). Organizations and Organizing: Rational, Natural, and Open System Perspectives. New Jersey: Pearson Education.

Searle, R., Hartog, D. N. D., Weibel, A., Gillespie, N., Six, F., Hatzakis, T., & Skinner, D. (2011). Trust in the employer: The role of high-involvement work practices and procedural justice in European organizations. International Journal of Human Resource Management, 22(5), 1069-1092. doi: 10.1080/09585192.2011.556782

Sen, A. (2010). Adam Smith and the contemporary world. Erasmus Journal for Philosophy & Economics, 3(1), 50-67.

Shafir, E., & Thaler, R. H. (2006). Invest now, drink later, spend never: On the mental accounting of delayed consumption. Journal of Economic Psychology, 27(5), 694-712. doi: 10.1016/j.joep.2006.05.008

Shazi, R., Gillespie, N., & Steen, J. Trust as a predictor of innovation network ties in project teams. International Journal of Project Management(0). doi:

Simpson, L. C. (2014). Technology, Time, and the Conversations of Modernity. USA, New York: Routledge.

Smith, E. (2013). Social connection makes a better brain. Retrieved November 8, 2014, from

Stabell, C. B., & Fjeldstad, Ø. D. (1998). Configuring value for competitive advantage: On chains, shops, and network. Strategic Management Journal, 19, 413-437.

Staley, K. (1999). Login, liberty, and anarchy: Mill and Feyerabend on scientific method. Social Science Journal, 36(4), 603.

Stuhlmacher, A., & Citera, M. (2005). Hostile behavior and profit in virtual negotiation: A meta-analysis. Journal of Business & Psychology, 20(1), 69-93. doi: 10.1007/s10869-005-6984-y

Tharenou, P., Saks, A. M., & Moore, C. (2007). A review and critique of research on training and organizational-level outcomes. Human Resource Management Review, 17(3), 251-273. doi:

Thompson, A. A., Peteraf, M. A., Gamble, J. E., III, A. J. S., Janes, A., & Sutton, C. (2012). Crafting and Executing Strategy: The Quest for Competitive Advantage. UK: McGraw-Hill Education.

Thompson, L., & Hastie, R. (1990). Social-perception in negotiation. Organizational Behavior and Human Decision Processes, 47(1), 98-123. doi: 10.1016/0749-5978(90)90048-e

Thompson, L., & Leonardelli, G. J. (2004). The big bang: The evolution of negotiation research. Academy of Management Executive, 18(3), 113-117. doi: 10.5465/AME.2004.14776179

Towers Watson, & Forbes Insights. (2011). Joining forces: Forging an HR/Finance partnership to shape employee rewards for the future.

Trötschel, R., Hüffmeier, J., Loschelder, D. D., Schwartz, K., & Gollwitzer, P. M. (2011). Perspective taking as a means to overcome motivational barriers in negotiations: When putting oneself into the opponent’s shoes helps to walk toward agreements. Journal of Personality and Social Psychology, 101(4), 771-790. doi: 10.1037/a0023801

van der Schalk, J., Beersma, B., van Kleef, G. A., & De Dreu, C. K. W. (2010). The more (complex), the better? The influence of epistemic motivation on integrative bargaining in complex negotiation. European Journal of Social Psychology, 40(2), 355-365. doi: 10.1002/ejsp.633

Venkataramani, V., Labianca, G., & Grosser, T. (2013). Positive and negative workplace relationships, social satisfaction, and organizational attachment. Journal of Applied Psychology, 98(6), 1028-1039. doi: 10.1037/a0034090

Vijayabanu, C., & Amudha, R. (2012). A study on efficacy of employee training: Review of literature. DARBUOTOJŲ MOKYMŲ EFEKTYVUMO TYRIMAI: LITERATŪROS APŽVALGA., 13(3), 275-282.

Wheeler, M. (2012). Three cheers for teaching distributive bargaining. Negotiation Journal, 28(1), 73-78. doi: 10.1111/j.1571-9979.2011.00326.x

WorldatWork. (2007). The WorldatWork Handbook of Compensation, Benefits and Total Rewards. New Jersey: John Wiley and Sons.

Yukl, G. (2013). Leadership in Organizations (8 ed.). Harlow: Pearson Education Limited.

Zafar, B. (2013). College major choice and the gender gap. Journal of Human Resources, 48(3), 545-595.

Zerres, A., Freund, P. A., Hüffmeier, J., Backhaus, K., & Hertel, G. (2013). Does it take two to tango? Longitudinal effects of unilateral and bilateral integrative negotiation training. Journal of Applied Psychology, 98(3), 478-491. doi: 10.1037/a0032255

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s