Economics and Psychology: the Broadening of Consumer Research

W. Fred van Raaij, Erasmus University
ABSTRACT - The concept of consumer research can be broadened to include aggregate spending and saving, taxation and social security, household production, and the consumer policy viewpoint. Psychological economics is even broader, including the testing of basic economic assumptions and the behavior of entrepreneurs and investors. It challenges the assumption of "economic man." The four contributions to a special topic session on psychological economics are discussed.
[ to cite ]:
W. Fred van Raaij (1984) ,"Economics and Psychology: the Broadening of Consumer Research", in NA - Advances in Consumer Research Volume 11, eds. Thomas C. Kinnear, Provo, UT : Association for Consumer Research, Pages: 729-730.

Advances in Consumer Research Volume 11, 1984      Pages 729-730

ECONOMICS AND PSYCHOLOGY: THE BROADENING OF CONSUMER RESEARCH

W. Fred van Raaij, Erasmus University

[Professor of Economic Psychology, Department of Economics, Erasmus University, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands. The author is Editor of the Journal of Economic Psychology.]

ABSTRACT -

The concept of consumer research can be broadened to include aggregate spending and saving, taxation and social security, household production, and the consumer policy viewpoint. Psychological economics is even broader, including the testing of basic economic assumptions and the behavior of entrepreneurs and investors. It challenges the assumption of "economic man." The four contributions to a special topic session on psychological economics are discussed.

INTRODUCTION

Economics and psychology both contribute to the study of consumer behavior. Their contribution is broader than the consumer research from a marketing perspective. The aggregate consumption and saving are a first area of interest. Consumption and saving levels depend on the ability (income) and willingness (confidence) to buy or to save. Curtin's (1984) contribution on consumer attitudes is concerned with these macro relationships. Secondly, consumer research should include taxation and social security, both as it takes away purchasing power and as a payment for collective goods (fiscal connection; Lewis 1982). A third area is the household sector, where commodities are produced, combining labor, market goods, and time (Becker 1981). Household production may be extended to the underground economy. A fourth broadening of consumer research stems from the consumer policy viewpoint, stressing the safety and durability of products and investigating the purchase and usage of products and their ecological effects. Consumer information acquisition and deceptive advertising are another area of research from the consumer policy perspective.

Psychological economics extends the area even further. Psychological research (experiments and surveys) contributes to the testing of basic assumptions in economics, not only regarding consumer behavior, but also considering entrepreneurial and investment behavior. It challenges the assumption of "economic man" and rational decision making. A review and outline of economic-psychological research may be found in Van Raaij (1981).

In this volume, four contributions constitute a special topic session on psychological economics with the purpose to broaden the scope of consumer research.

A NEW ROLE FOR PSYCHOLOGICAL ECONOMICS

Cook (1984) defines the field in relation to other disciplines and illustrates the direction of research in the first ten years of the Journal of Consumer Research. Most JCR articles have an individual unit of analysis and employ self-report as a measurement method (IV). Another area are the consumer population surveys (III). Relatively underdeveloped are the consumer laboratory experiments (II) and the economic studies based on observations of populations (I). Type I studies are typical for economics, whereas type IV is typical for the psychological approach. Consumer research, as exemplified by the contents of JCR, is heavily oriented toward marketing, and employs a mainly social-psychological approach.

Cook already remarks that observation and self-report "are not mutually exclusive, as observation may be combined with self report data." In fact, a gray area exists between pure observation and pure self-report. The behavior of persons may become different, as soon as they know that they are observed. Behavior may be a type of self-expression, just as self-reports may be. The difference between a diary and a scanner panel exemplifies the difference between self-report and observation. But is the latter always more objective? A trend toward more observation is obvious with the introduction of new scanning and monitoring technology.

In marketing, the traditional economic approach has been displaced gradually by behavioral elements, and at the moment one observes a dominance of the behavioral sciences in consumer research. In general economics, however, the behavioral approach is yet to come. Behavioral economics is a new and promising field of investigation (Katona 1975). Not only psychologists but also sociologists may contribute to the consumer population survey approach.

The emphasis on observation rather than self-report is . characteristic of the economic approach and of the behavioristic approach in psychology. Observations of behavior are generally preferred over self-reports, the latter being more susceptible to social desirability biases. Only, if observation of consumer behavior is impossible or too expensive, one could make use of self-reports. Self-reports are also necessary for the measurement of unobservable theoretical constructs, such as values, attitudes, and expectations.

A last comment with regard to Cook's contribution is the forgotten dimension of cross-section vs time-series (Van Raaij 19825. A three-dimensional figure 2 would then contain eight entries: I. Repeated vs single observation of a population; II. Scanner panel vs one-time observation of individuals; III. Repeated vs single cross-sections, cf. the Index of Consumer Sentiment (Katona 1975); IV. Diary panel vs one-time self-reports by individuals.

CONSUMER ATTITUDES FOR FORECASTING

Curtin's (1984) contribution stresses the aggregate power of consumers. Consumer investments, savings. and debt have strong effects on the aggregate course of the economy (Katona 1975). Total automobile sales and total consumer debt over a 24-year period (1959-1983) can be explained by income and psychological variables, such as the Index of Consumer Sentiment, evaluations of buying conditions for vehicles, traditional price rationales and advance buying rationales given for market evaluations.

One may wonder, however, whether the 24-year period should not be divided in an affluence and a recession period. Both periods may be different with regard to the determinant variables and the structural relationships, assuming that economic prosperity and recession are not the opposite sides of the same phenomenon. Curtin concludes that consumer reactions to the economic environment have become more complex during the recent years and more important for the analysis of cyclical trends in consumer spending and saving behavior. However, in a period of recession discretionary income will go down. This may lead to less variance in consumer behavior and thus to more predictability in consumer spending and saving.

DEMOGRAPHICS

Utsey and Cook (1974) deal with demographic differences between nonusers, light and heavy users of sixteen grocery products, based on a large syndicated data base. They find dependencies between demographic characteristics and product usage levels. The following demographic variables are used: age, family life cycle, level of education, occupational status, and income level. Linear relationships between demographic characteristics and product usage are not always significant; nonlinear relationships certainly exist and may be detected with chi-square analysis. This may be useful for market segmentation. Most linear techniques, such as multiple regression, may not catch the nonlinear relationships, although nonlinear adaptations may demonstrate these relationships. Demographics remain important to describe market segments, and it is largely a matter of statistical techniques to obtain an adequate description.

Are demographics really dead? Sheth (1974) concludes that discarding demographics is premature at best. One should integrate demographic, psychographic, and personality variables to obtain a complete picture. Demographics remain useful as long as the census data are limited to a socioeconomic/demographic profile of the citizens. Other factors should be linked to demographics, even if they are more relevant to describe a market segment. Demographic variables link the census data to the life-style data of market researchers.

An interesting observation in the Utsey-Cook paper is the micro-macro distinction. Demographics may be useful at the group level and not at the individual level (Bass, Tigert, and Lonsdale 1968). Although demographics may not explain the variance in product usage very well, demographic variables remain useful as segmentation variables. Segments such as nonusers, light and heavy users may be distinguished and characterized by demographics. This way of using demographic variables has never been dead, to my knowledge.

EXPERIMENTAL ECONOMICS

Grether and Wilde (1984) show that the conditions and the design of economic experiments are "starker" than of most experiments in consumer research. The experimenter controls the reward structure and privacy of the experimental subjects. The experiments gets a "game-like" and abstract character and may become difficult to understand for the average consumer or experimental subject. Using students rather than the average consumer in experiments may bias the outcomes (Van Raaij, ]977). Social interaction and reference (the "privacy" precept) are excluded. The experimental subject operates in an abstract market without knowing the behavior of other individuals except in the aggregate. Emphasis is on observed rather than self-reported behavior.

A similar tradition exists in experimental psychology from the behavioristic paradigm. Design an experiment in such a way that all rival explanations of the results are excluded. Why did we forget this in experimental consumer research? Experiments in consumer research are less "stark" and the findings are often subject to multiple interpretations. The trade-off is between face or external validity on the one hand and internal validity on the other hand. The similarity or parallelism of an experiment with a real-world situation might be attractive to experimenters, experimental subjects, and sponsors of the (marketing) research, from a scientific viewpoint internal validity and the exclusion of rival hypotheses might be more relevant.

CONCLUSION

The above contributions show only a small part of the area of psychological economics. Consumer research in its present form is a part of psychological economics. Many more areas of overlap between economics and psychology are worthwhile, interesting, and relevant domains of investigation. Their societal relevance is obvious.

REFERENCES

Bass, Frank M., Tigert, Douglas J., and Lonsdale, Ronald T. (1968), 'Market Segmentation: Group versus Individual Behavior," Journal of Marketing Research, 5, 264-270.

Becker, Gary S. (1981), A Treatise on the Family, Cambridge: Harvard University Press.

Cook, Victor J. (1984), "A new Role for Psychological Economics in Consumer Research," Advances in Consumer Research, Vol 11, ed. Thomas C. Kinnear, Association for Consumer Research.

Curtin, Richard T. (1984), "Consumer Attitudes for Forecasting," Advances in Consumer Research, Vol. 11, ed. Thomas C. Kinnear. Association for Consumer Research

Grether, David M. and Louis L. Wilde (1984), "Experimental Economics and Consumer Research," Advances _ Consumer Research, Vol 11, ed. Thomas C. Kinnear, Association for Consumer Research.

Katona, George (1975), Psychological Economics, New York: Elsevier.

Lewis, Alan (1982), The Psychology of Taxation, Oxford: Martin Robertson.

Sheth, Jagdish N. (1974), "Role of Demographics in Consumer Behavior," paper presented at the ACR Conference, November , Chicago.

Utsey, Marjorie Fox and Victor J. Cook, Jr., "Demographics and the Propensity to Consumer," Advances in Consumer Research, Vol 11, ed. Thomas C. Kinnear, Association for Consumer Research.

Van Raaij, W. Fred (1977), "Consumer Information Processing for Different Information Structures and Formats," Advances in Consumer Research, Vol 4, ed, William D. Perreault, Jr., Association for Consumer Research.

Van Raaij, W. Fred (1981), "Economic Psychology," Journal of Economic Psychology, 1, 1-24.

Van Raaij, W. Fred (1982), ""Micro and Macro Economic Psychology," Erasmus University, Papers on Economic Psychology, Number 19, March.

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