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Inspiring Economics

Human Motivation in Political Economy

Bruno S. Frey

Bruno S. Frey illustrates what he perceives to be the inspirational quality of economics and how this differs from the type of economics studied in many academic institutions. He introduces insights into economics from a psychological perspective, dealing with issues such as transformation of anomalies, identification in democracy and crowding effects, and focuses on intrinsic motivation and how it is undermined.
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Chapter 5: From the Price to the Crowding Effect

Bruno S. Frey


ECONOMICS AND PSYCHOLOGY Over the last few years, considerable work has been undertaken to bring economics and psychology closer together. Two different approaches may be distinguished. The first approach is to break completely with existing (neoclassical) economics and construct a ‘psychological economics’, where human beings are analysed according to the ideas and concepts of psychology. While such attempts are courageous, they have little or no effect on economics. Modern economics as the self-proclaimed ‘queen of the social sciences’ has achieved a well-defined core of assumptions and models, which are vigorously protected by academic economists against outside criticism. The second approach is to introduce specific psychological effects into economics and to thereby improve the rational choice view of man. Prominent examples are: ● ● ● ● Scitovsky, who builds on Wundt’s Law of the optimal degree of arousal, and refers to it as the ‘desire for excitement’. Hirschman, who inquires into the conditions under which artistic activity, entrepreneurship and innovation can be awakened. He thus does not take the effort expended as given. One possibility of activating people is to consciously create imbalances; they induce and even force people to become active in order to survive, or to at least maintain their standard of living. Simon, Selten and Tietz, and Williamson, who propagate that individuals are incapable of maximizing in any strict sense, and propose the concept of ‘bounded rationality’ as a more realistic, and psychologically adequate alternative, which takes cognitive and motivational limitations of human thinking into account. Schelling, Thaler and Shefrin,...

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