Wednesday, September 15, 2010

Psychology Students and Economics

I will be giving talks again this term to psychology students on behavioural economics. I have given a number of talks before about the potential role of psychology graduates in the modern economy. Some of this material is relatively obvious to people who have studied behavioural economics. My basic point in motivating psychology students to think about behavioural economics is that they have a strong role in dealing with many of the major challenges the world is facing in the 21st century. If we look at areas such as pensions reform, much of this comes down squarely to human psychology including issues such as future thinking, trust, procrastination, social network effects and so on. Increasingly, in areas such as climate change there is a greater emphasis in understanding the psychology of how people respond to incentives as well as understanding the best incentives to design from a theoretical point of view. In Ireland, the design of unemployment schemes, financial regulation reform, taxation and a wide range of other areas are now only informed by people with psychology training to a very surface degree and are areas where real psychology input could potentially yield very high social and economic returns.

Almost all the basic psychology undergraduate syllabus is relevant to economics but particularly relevant are courses in cognitive psychology, social psychology and neuroscience. If you look at the references in many modern economics journals, you will increasingly see citations to classic works in these fields. Some of the leading drivers throughout the 20th century of cognitive psychology such as Daniel Kahneman and Herbert Simon were also Economics Nobel winners. Thought leaders in economics such as Sendhil Mullainthan and Andre Shleifer are increasingly drawing from cognitive theories of attention to explain a wide range of economic phenomena from poverty to stock market fluctuations. Social psychology is also becoming increasingly influential in economics, with a great deal of work emerging on herding, conformity and related group processes. There is a also a growing field of neuroeconomics, which examines the neural basis of economic decisions.

While most psychology undergraduates have options in areas relevant to public policy such as health psychology, and relevant to business such as consumer psychology, it is still the case that most psychology students view major economic and social institutions such as healthcare, legal and financial systems as somehow outside their remit, with economics graduates largely dominating many of our core institutions globally. My experience with psychology students so far is that they are bright, interested in people and very comfortable with "hands-on" data gathering, field experiments and so on. I think there should be more people with psychology training in the heart of economic policy design in the context particularly of multidisciplinary teams. More on this issue as the term progresses.

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