The Psychology of Homo Economicus

Abstract

The conventional economic paradigm was based on assumptions of stable preferences, perfect rationality, and tight market equilibrium (Kirchgassner, 1991). Within this tradition of homo economicus, people are seen as reliable pursuers of self-interest. In many areas of economic behavior this is true: People compare prices when they decide what product to buy, decide carefully before making investment decisions, and hire experts to get good advice (Loewenstein & Haisley, in press). However, people do not always behave according to the predictions of classical economic models. Examples described in the literature are paradoxes and anomalies (e.g., Kahnemann & Tversky, 1979) that question the presumed rationality of the human decision-making process. Therefore, Raaij (1999) concluded “that people are not perfect and rational, as is assumed in most economic models” (p. 271). For a long time, economics neglected the relevance of psychological variables for the explanation and prediction of economic behavior (Camerer & Loewenstein, 2004). However, over the last 10 years more and more researchers have highlighted the importance of psychological theories for predicting economic behavior (e.g., Fehr & Falk, 2002; Lewin, 1998; Loewenstein & Haisley, in press; Rabin, 1998; Tirole, 2002). By demonstrating how human decisions can systematically deviate from those predicted by standard economic theories, behavioral economists and economic psychologists have laid the foundation for a new field of research (Raaij, 1999). Moreover, behavioral economists and economic psychologists have provided evidence that economic behavior depends critically on psychological, institutional, cultural, and even biological factors (for an overview see Camerer, Loewenstein, & Rabin, 2004). The purpose of this issue is to highlight recent research and developments in behavioral economics and economic psychology. Among the psychological factors discussed as having an impact on human decision-making in this issue are public recognition (Frey & Neckermann), norms, perceptions of fairness, and motivation to cooperate (Hofmann, Hoelzl, & Kirchler), brand image (Fichter & Jonas), the way changes are justified (Traut-Mattaussch, Jonas, Forg, Frey, & Heinemann), as well as choice and accountability (Wolf & Moser). Overall, this special issue contains six articles. The first article “Awards: A View from Psychological Economics” by Bruno S. Frey and Susanne Neckermann (2008) focuses on a neglected issue in the field of behavioral economics and economic psychology: awards and their influence on behavior. The authors highlight the differences between awards and monetary compensation for enhancing performance and discuss how awards are distributed in many different fields of social life (e.g., civil and military service, arts, research, education, social welfare, sports, business, or politics). Moreover, Frey and Neckermann’s cross-cultural analysis highlights the fact that the frequency with which awards are distributed differs substantially across countries. In the final, empirical part of the article the authors investigate the influence of awards on work behavior. For this purpose they conducted a vignette study and varied a number of award characteristics. Results point to the impact of awards on work behaviors. Furthermore, they highlight the fact that not only the monetary value of the award but also the degree of publicity associated with receiving it has a crucial impact on work behaviors. In the second contribution “Preconditions of Voluntary Tax Compliance: Knowledge and Evaluation of Taxation, Norms, Fairness, and Motivation to Cooperate,” Eva Hofmann, Erik Holzl, and Erich Kirchler (2008) argue that tax compliance “is not only influenced by audits and fines, but also by a number of internal variables” (p. 213). Within their comprehensive review the authors discuss psychological research regarding tax compliance by distinguishing four types of internal variables: (a) knowledge and evaluation of taxation, (b) norms, (c) perceptions of fairness, and (d) motivational postures. Based on their review of the literature, Hofmann et al. finally suggest several possibilities for programs to enhance tax compliance. According to the authors, the aims of these programs should be to improve taxpayers’ knowledge, attitudes, trust, and perception of fairness. To achieve these goals different communication strategies at the societal, group, and individual level are necessary. Several possibilities for each level are described in the article. The third article also addresses the question of how governmental regulations can be communicated in a way