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Melting pot: behavioral, cognitive and psychology in Economics. A study by Croatian students


Lucija Baranović and Jelena Čulić, two students of University of Split, Faculty of Economics, Business and Tourism, wrote this paper for the CSB Pilot Course, one of the main intellectual output of the CSB project.


Psychology is really a very new science, with most advances happening over the past 150 years or so. However, its origins can be traced back to ancient Greece, 400 – 500 years BC. Psychology is the scientific study of the mind and behavior. It is a multifaceted discipline and includes many sub-fields of study such areas as human development, sports, health, clinical, social behavior and cognitive processes. The classic contemporary perspectives in psychology to adopt scientific strategies were the behaviorists, who were renowned for their reliance on controlled laboratory experiments and rejection of any unseen or unconscious forces as causes of behavior. During the 1960s and 1970s, psychology began a cognitive revolution, adopting a rigorous, scientific, lab-based scientific approach with application to memory, perception, cognitive development, mental illness, and much more.

Today, we distinguish between behavioral and cognitive approaches in psychology. Cognitive psychology studies the impact of our thoughts on our emotions and behavior. Behavioral psychology is interested in human behavior, that part of our psychic life that we can observe directly. Psychologists have realized that there is an interesting connection between these two approaches and that by studying our thoughts we can understand why we somehow feel and behave. The cognitive is invisible and affects the behavioral that is studied from human behaviors. These two approaches decided to unite their knowledge.

Economics at its core views the individual. It studies how he behaves, how he makes decisions and how his behavior affects other market participants. Economic psychology is the interdisciplinary investigation of the interface between psychology and economics. It is concerned with the psychological basis of the economic behaviors of individuals, and the impacts of economic processes on individuals' psychology. It uses both economic and psychological concepts and research methods.

Economics is a very complex science and is influenced by many variables that are difficult to test in the laboratory. Rationality has been appearing in economic models since the time of Adam Smith. Rational choice theory assumes that people always choose the best option from those offered. Often the concept of rationalization is not applicable and there are behavioral anomalies and people do not behave as the economy assumes. The reason for this is the presence of cognitive and behavioral influences that economists do not take into account. In economics, the notion of behavioral economics began to emerge, as a discipline that examines the explanatory power of economics by combining it with more realistic psychological settings, using social, cognitive, and emotional factors in understanding the economic decisions of individuals and institutions. Economists think that people behave rationally and predictably, but in fact people are impulsive, shortsighted and irrational. The main question and problem is how do people make decisions and on what basis? When and why people behave differently that economic model sugests?

In this paper, the aim is to investigate the connection between cognitive and behavioral psychology and to present it on concrete examples as well as recent trends.

In preparing the paper, the following methods will be used: synthesis method, analysis method, induction method, deduction method and desk research to collect secondary data.

In the introductory part of the paper, the research problem and basic concepts related to the topic as well as the methods of work are defined. This will be followed by the definition of cognitive economics and behavioral economics and their interconnectedness and interdependence. The third part of the paper will include concrete examples as well as the latest trends related to this topic. In the final part of the paper, the overall conclusion on the mentioned topic will be given, as well as the literature.

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