Why Do Economists Need Us - Essay Example

Why do economists need us? The essay intends to evaluate the he contribution psychologists can make to the domain of traditional economics which affects the understanding and process of economics. From the evaluation, it is determined that the varied concepts associated with psychology have a profound impact on the traditional economics as the critical dimensions of human behavior and attitude are taken into account. The strong interaction of both the sciences can render the economists a laid down path to derive their comprehension regarding the multitude of notions associated with economic theories. Introduction Economics is a form of science which is continuously interacting with other sciences. The literature of economics evaluates the behavior of the people while considering the decision making progress. On the contrary, psychology is a part of science which evaluates the behavior of the people. In this regard, it can be stated that psychology has a profound influence on economics. The human psychology impacts individuals while they make decision regarding economics. Economics and psychology are the disciplines which are derived upon human behavior and attitude and have a great influence on each other. As observed, psychology explores wellbeing and human judgment which facilitates an individual to evaluate relevant aspects regarding traditional economic assumptions. Traditional economics defines that being a rational human being people try to maximize their wealth by taking economic decisions (Sen, 2012). The objective the essay is to evaluate the contribution psychologists can make to traditional economics along with the understanding of the economic processes. It will reflect to how the psychology with regard to economic behavior and attitude will affect individuals while making economic decisions. Relationship between psychology and economics is explained throughout the essay. Critical Evaluation of Contribution of Psychologists on Traditional Economics Traditional economic theory assumes that people have complete knowledge and are thus able to use the knowledge in a productive manner. It reflects that people are rational decision maker and hence they are well defined (Knoll, 2010). The information and the rational decision are affected by the psychological aspects i.e. behavior and attitude. The incorporation of the psychological factors on economics is an important aspect to create value regarding behavior as well as welfare implications. Psychology has great relevance in economics in the present day purview in order to have a better financial wellbeing. It is a proven fact that the psychology influences the cognitive decision of the people. Thus, in order to generate best interest in terms of wealth, economics considers psychological purview while taking decision. From the comprehension of judgment and decision making (JDM) and behavioral economics, is it recognized that there is a gap between the intention of the people and behavior due to a lack of psychological contribution. In order to bridge the gap between the two, it is important to consider psychology as a part of economics. The contribution of psychologists in economics will be such that it will assist the individuals to bridge the gap amid what they ought to do and what they want to do (Frey & Benz, 2004; Frey & Stutzer, 2002). In this context, it is further witnessed that the experts of economics state that the reasoning of economics is expanding outside the boundary of economics. This implies that they have the opinion that motivation, self-expectations and awareness are becoming considerable factors to derive proper relevant economic decisions. Besides, it is observed that economics gains benefit from the psychological influences. Consequently, the policymakers take rational decisions which can be stated as a major success due to the influence of the behavioral aspects. The science of economics is influenced on the basis of self-control and emotion to assist the policymakers to understand which factors are important in order to build savings behavior for the people. The incorporation of two sciences is creating a better influential policy and decision from the policymakers. This has increased the importance of thinking, motivation and rational decision (Frey & Benz, 2004). It is viewed that the mainstream economics is a combination of methodological and mathematical formulation which creates an obstacle to integrate psychology into economics. This implies a lack of logical and rational insights of the human behavior. The psychological findings are at times of great importance, potential and tractable which if integrated in economics will provide a result with fewer shortcomings (Rabin, 1996). The contribution of psychologists on the economics will have a broader impact on the economics behavior. It implies that decision making process will be influenced by the human emotions and also mind. It is criticized that due to the influence of psychology the economic policymakers are unable to provide rational output. This is due to the influence of the human behavior which might lead to the creation of a policy which has some error. Whereas, few researchers are of the opinion that due to the impact of human behavior in economic decisions, people are taking right decision and creating value (Slide Share, 2009). Moreover, the various ideas from psychology have been initiated in the economics to get fruitful results. In this regard, it is stated that due to psychological influences, economists are able to recognize the weakness and try to overcome it for better future perspective. Besides, human motivation is another aspect which helps in the economic analysis. For example, if the relative price of a product falls, the demand would increase. This perception is relevant in the field of economics as it has the influence of psychology. This notion is being applied in the theory of economics to get a better result in accordance with the prediction (Frey & Stutzer, 2002). From the point view of psychologists, human motivation is generally of two kinds such as intrinsic and extrinsic. This separation of the motivational aspects helps the economists in developing the theories to get proper predictable outcomes. Psychologists have come up with the view that the attention of the people can be gained through the hidden costs of rewards. This factor is influential in creating policies regarding the monetary aspects for better economic decision (Frey & Stutzer, 2002). The opinion of psychologists on the subjective wellbeing has a great impact on economy. The contribution of psychologists in the classical economics is worth mentioning. The classical economists believed that people take rational decisions for their benefit. In this regard, a particular cognitive psychologist who contributed in the economic decision making stated that people are not completely rational but are “boundedly rational.” This implies that human beings are rational and their decision depends largely upon the constraints of time, money, ability to think and emotions (Moses, 2013). The view of the psychologist regarding the motivational aspects and decision making process of the people facilitates the economists to take a proper approach and make a set of good decisions regarding the policies. The framing effect is an important factor that influences the decision making process for a better substantial result. Due to the psychologists, the economic policymakers are able to understand the human behavior in a better way. Consequently, the attitude and the behavior of the human being with regard to the uncertainties of the environment are reduced. Another psychologist asserted that the human mind and their decision changes to a great extent keeping in view the cultural and cognitive sciences. The understanding of the psychologists is incorporated in the theories to get positive response. The study of relative price and the behavior of the human being is a good example wherein the psychology of people helped in developing a proper theory of demand and supply relating to the price. As the price of goods reduces; the demand for the product increases and vice versa. This theory is accurate due to the presence of the psychologists’ views in economics (Tadic, 2006). Furthermore, from the point of view of economics, it is difficult to evaluate satisfaction level a product yields to the individual. This indicates the inability of the economists to measure the importance of utility and satisfaction. The psychologists have contributed to a large extent by evaluating the human psychology and behavior towards products, which is helping the economists in measuring a yield a particular good provides to the individuals (Frey & Benz, 2004; Fetzer, n.d.). The contribution of psychologists is such that it provides “people the best shot to make a good decision” (Stewart, 2005). The main aim is to provide a proper environment wherein the experts will be able to provide the participants with well-informed information to get the best deal while making the decisions (Stewart, 2005). The concepts of self-control, self-enhancing and motivation are the aspects that are considered by the psychologist and these assumptions are now being considered by the economists to minimize the risk factors and understand the preferences and attitude of the people. The sciences of economics and psychology are interdependent to provide a better response and buying decision. The contribution of psychologists helps in creating richness in the environment by supporting the views of the people and their economic decisions based on the economic theories. The behavioral sciences truly have an influence on the people and the policymakers, creating a substantial standard of economics (Stewart, 2005). Conclusion The interaction between the economists and psychologists is important to help in deriving a proper buying behavior. The economists benefit to a large extent by giving proper insights to the view of the psychologists in forming of the policies. Both the sciences are of importance to evaluate the behavioral aspects and economic relevance. The social awareness and the cognitive effects are vital aspects for economics to derive proper judgment. It is also determined that psychologists assist in the development of rationale behind the economic decisions of policymakers which is significantly based upon the comprehension derived related to human nature without being bias. Thus, it can be asserted that economics and psychology together facilitate to create a better understanding along with considerations keeping in view the external factors and human nature. References Frey, B.S. & Stutzer, A. (2002). Economics and psychology: from imperialistic to inspired economics. Article, 5-22. Frey, B.S. & Benz, M. (2004). From imperialism to inspiration: a survey of economics and psychology. Article, 62-83. Fetzer, J. (n.d.). Why traditional economics just wont do. Traditional Economics, 1-9. Knoll, M.A.Z. (2010). The role of behavioural economics and behavioural decision making in Americans’ retirement savings decisions. Social Security Bulletin, 70(4), 1-23. Moses, J. (2013). Get action instead of indifference: using behavioural economics insights to deliver benefits messages. Behavioural Changes, 8-15. Rabin, M. (1996). Psychology and economics. Department of Economics, 1-93. Sen, S. (2012). The relationship between psychology and economics. Okan University, 1-14. Slide Share. (2009). Psychology Meets Economics. Retrieved from http://www.slideshare.net/tigerzmsg/psychology-meets-economics Stewart, S.A. (2005). Can Behavioural Economics Save Us From Ourselves? Retrieved from http://magazine.uchicago.edu/0502/features/economics.shtml Tadic, T. (2006). Douglass C. North: understanding the process of economic change. Paneconomicus, 487-490. Read More