Over the last years there has been increased interest in psychological research by economists to explain seemingly 'irrational' behavior of economic agents and to understand why classical economic models do not always predict well. Both experimental economics and behavioral economics base themselves on methods and results from psychology. Meanwhile psychologists cover many of the topics that economists have been working on for many years and start to increasingly use games and paradigms from economics.
The communication between the two disciplines is however not always easy: due to different objectives, methods and scientific 'language'. To encourage true interdisciplinary collaborations between psychology and economics, as well as other social science disciplines, is the aim of the IAST program in Psychology.
Various topics fall into this program:
Trust and social interactions between economic agents: The importance of trust for economic interactions is evident. However it is still not clear which factors lead us to trust other people. Psychologists have investigated this with a view on the importance that visual stimuli and emotions play in social interactions. Economic experiments usually study anonymous interactions but control the monetary incentives. Combining the two approaches will bring us closer to understand real world trust.
Contribution to public goods: A large and important topic in economics concerns situations in which the individual and the group's interest are not aligned. Overfishing, greenhouse gas emission and rainforest protection... to name just a few. In such situations each individual economic agent prefers to be selfish (fish as much as possible, take the plane and buy exotic wood) at a cost for the larger community. Psychology can help understand such problems by considering which factors reputation, emotions, social image and group attitudes play.
Groups and families: While many economic interactions are taken not individually, the dynamics behind decisions made by groups, teams or families are not yet fully understood. Psychological knowledge on such dynamics combined with the refined models by economists can lead to a better understanding of such situations.
Markets and individuals: How can it be that bubbles in financial markets keep appearing even though financial traders should know about this phenomenon? What is the interaction between rational profit seeking, naïveté of certain investors, emotions and group pressure? Which factors should be added to economic models to improve predictions? These are just some of the questions that have been occupying behavioral finance and are also relevant for psychology.