IAREP Kahneman Lecture: Economic Psychology and Behavioural Public Policy

I will be giving one of the keynote lectures at the International Association for Research in Economic Psychology in Estonia in June. The talk will outline ideas on the role of economic psychology in the development of current trends in behavioural science and policy.  As part of the preparation, I will be interviewing a number of people with lived experience of the development of economic psychology. This post will keep track of some background notes and interesting sources. It will evolve throughout the first half of 2025 and is intended purely to aid conversations and not as a fixed view or source document in itself. 

Deep History 

Ashraf, Camerer and Loewenstein's "Adam Smith, Behavioral Economist" provides an account of the ideas of one of the era's main figures.

David Hume also anticipates many of the key ideas in modern behavioural economics. See below for a particularly illustrative passage (the full chapter here) from his Treatise of Human Nature, in which Hume provides an elegant account of present-bias, one of the key concepts in modern behavioural economics. Hume's work, in general, was dense in economic and psychological intuition, with many insights relevant to the types of literature we discuss on this blog.

"In reflecting on any action, which I am to perform a twelve-month hence, I always resolve to prefer the greater good, whether at that time it will be more contiguous or remote; nor does any difference in that particular make a difference in my present intentions and resolutions. My distance from the final determination makes all those minute differences vanish, nor am I affected by any thing, but the general and more discernible qualities of good and evil. But on my nearer approach, those circumstances, which I at first over-looked, begin to appear, and have an influence on my conduct and affections. A new inclination to the present good springs up, and makes it difficult for me to adhere inflexibly to my first purpose and resolution. This natural infirmity I may very much regret, and I may endeavour, by all possible means, to free my self from it. I may have recourse to study and reflection within myself; to the advice of friends; to frequent meditation, and repeated resolution: And having experienced how ineffectual all these are, I may embrace with pleasure any other expedient, by which I may impose a restraint upon myself, and guard against this weakness.".

General histories of economic psychology 

First chapter of Economic Psychology: an introduction by Erich Kirchler and Erik Hoelzl. In general, the book also provides a template for the textbook scope of modern economic psychology. 

Introduction to Economic Psychology: The Science of Economic Mental Life and Behaviour by Rob Ranyard, Vera Rita De Mello Ferreira. 

The work of George Katona at the Survey Research Centre at Michigan and the work of Herbert Simon at Carnegie-Mellon is described in this 2003 Journal of Socio-economics article by Hamid Hosseini. The article also provides information and links to a range of other interesting papers and contributions from the first half of the 20th century.

Histories of Behavioural Economics 

Camerer, C. F., and Loewenstein, G. (2003) “Behavioral economics: Past, present, future,” in Camerer, C. F., Loewenstein, G., and Rabin, M. (eds.) Advances in Behavioral Economics. Roundtable Series in Behavioral Economics. Princeton, NJ: Princeton University Press: 3–51

Behavioral Economics: Policy Impact and Future Directions. Chapter on Development of Behavioural Economics. 

Laibson, D., and Zeckhauser, R. (1998) “Amos Tversky and the ascent of behavioral economics.” Journal of Risk and Uncertainty 16 (1): 7–47.

Rabin (2002), "A perspective on psychology and economics," European Economic Review.

Richard Thaler's MisBehaving is a gripping account of the development of behavioural economics in top US universities in the 70s, 80s, and 90s.

Niels Geiger The Rise of Behavioral Economics: A Quantitative Assessment

Abstract

This article is devoted to the issue of operationalizing and empirically measuring the development of behavioral economics, focusing on trends in the academic literature. The main research goal is to provide a quantitative, bibliometric assessment to answer the question of whether the relative importance of behavioral economics has increased over the past decades. After an introduction and a short summary of the history of behavioral economics, several studies are laid out and evaluated. The results generally provide a quantitative confirmation of the story of a rise of behavioral economics that can be found in the literature, and add some notable additional insights.

Hands, D. W. (2010) “Economics, psychology and the history of consumer choice theory.” Cambridge Journal of Economics 34: 633–48.

This paper examines elements of the complex place/role/influence of psychology in the history of consumer choice theory. The paper reviews, and then challenges, the standard narrative that psychology was 'in' consumer choice theory early in the neoclassical revolution, then strictly 'out' during the ordinal and revealed preference revolutions, now (possibly) back in with recent developments in experimental, behavioural and neuroeconomics. The paper uses the work of three particular economic theorists to challenge this standard narrative and then provides an alternative interpretation of the history of the relationship between psychology and consumer choice theory.

Esther-Mirjam Sent "Behavioral Economics: How Psychology Made Its (Limited) Way Back Into Economics"

Contemporary Overviews of Economic Psychology 

George Katona 1954 Scientific American Article on Economic Psychology

Webley, Burgoyne, Lea, and Young 2001 - The Economic Psychology of Everyday Life 

Illustrative Canonical Works 

Edgeworth's Mathematical Psychics is a classic work and is eerily relevant to modern debates about decision-making despite being published in 1881. David Colander's excellent JEP article on Edgeworth and Fisher is well worth reading.

Keynes' General Theory set out many of the themes in what is now beginning to be called behavioural macro.

Frank H, Knight's classic "Risk, Uncertainty and Profit" provides ideas on the role of uncertainty in economics that continue to be highly relevant.

Karl Polanyi's "The Great Transformation" is a key work across several interdisciplinary disciplines in Economics. It contains a vast range of insights into the development of market societies and the psychological, cultural, and other aspects of market behaviour.

The work of Maurice Allais was written exclusively in French and not widely translated making it all the more remarkable he was awarded the Nobel Prize in 1988. A study of Allais would require a lot of time, patience and linguistic ability but he is clearly an important figure in the history of economic thought relevant to behavioural economics. Paul Samuelson famously stated that “Had Allais's earliest writings been in English, a generation of economic theory would have taken a different course.”

As much a warning about excess as anything else, Watson (1913) "Psychology as the Behaviorist Views it" is the classic statement of the behaviourist view of psychology.

Simmel's Philosophy of Money is often cited as a historical reference in modern papers on economic psychology. It deals with a staggering array of questions on the philosophy and implications of using money as the medium of exchange.

How the Divorce Happened 

Lewin "Economics and Psychology: Lessons for Our Own Day From the Early Twentieth Century" documents the interaction between the development of neo-classical marginalist economics and the development of psychology as a separate discipline.

Daniel Read's "Experienced Utility from Jeremy Bentham to Daniel Kahneman" provides a detailed account of the attempt to measure utility directly over the centuries. Ulrich Witt also reviews the history of utility distinguishing between sensory utilitarianism that seeks to measure utility directly and the more axiomatic form that dominated in the 20th century.

Bruni, L., and Sugden, R. (2007) “The road not taken: How psychology was removed from economics, and how it might be brought back.” The Economic Journal 117 (516): 146–73

This article explores parallels between the debate prompted by Pareto's reformulation of choice theory at the beginning of the twentieth century and current controversies about the status of behavioural economics. Before Pareto's reformulation, neoclassical economics was based on theoretical and experimental psychology, as behavioural economics now is. Current ‘discovered preference’ defences of rational-choice theory echo arguments made by Pareto. Both treat economics as a separate science of rational choice, independent of psychology. Both confront two fundamental problems: to find a defensible definition of the domain of economics, and to justify the assumption that preferences are consistent and stable.

Strange Intersections 

George Ainslie "Freud and Picoeconomics" 

Hofmann and Van Dillen "Desire: the new hotspot in self-control research".