Social Psychology v. Behavioral Economics: 3 Key Differences

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Over the last 10 years, Behavioral Economics (BE) has become increasingly popular (see Google Trends chart below). According to BE, people’s economic decisions are often less guided by stable preferences, rational analysis, and selfish motives than by (often highly contextual) cognitive, emotional, and social influences.

The initial spark for the field’s popularity was arguably the publication of the books Predictably Irrational (Ariely, 2008) and Nudge (Thaler & Sunstein, 2008). Inspired by the latter and other developments in the field, BE has grown a strong body of literature on real-world applications to behavior change–"nudging." This area combines ideas from a number of academic disciplines, particularly BE and Social Psychology (SP). According to the American Psychological Association, SP "is the study of how individuals affect and are affected by other people and by their social and physical environments." Classic nudge concepts from SP include social norms, commitment, and priming, among others. Nudge ideas that are more associated with BE include defaults, decoy options, and framing, to name a few. (For an overview of nudge techniques, I would recommend Dolan et al., 2012, Sunstein, 2014, and Johnson et al., 2012.) Nudge research and practice has combined BE and SP under the umbrella terms of applied "behavioral science" or "behavioral insights."

The popularization of behavioral economics

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As a result of these developments, the boundaries between BE and SP have become increasingly blurred, particularly for people outside of those fields. So, aside from specific theories, what are the differences and similarities between the two fields?

In the latest Behavioral Economics Guide (2018, pp. VII-VIII), the social psychologist Robert Cialdini points to three main differences with respect to the questions asked by those disciplines, their underlying assumptions, as well as their methodologies. He describes the first one as follows:

Behavioral economists ask questions mostly about the way people make economic choices/judgments or the way particular financial systems (retirement plans, tax codes, etc.) affect those responses (Thaler, 2018). Social psychologists are willing to consider other, non-fiscal personal choices as well. For instance, my research teams have investigated why people are motivated to litter a public space, wear a home team sweatshirt, display charity organization posters, reuse hotel guest room towels, and volunteer to give a unit of blood.

This distinction is important and particularly true for behavioral economists concerned with traditional questions about the behavior of economic agents in markets. However, some of the topics mentioned by Cialdini may be addressed by behavioral economists interested in labor, welfare, or environmental economics.

Towel reuse example

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When research questions overlap, differences between BE and SP often remain in terms of terminology and methodology, as well as the psychological mechanisms investigated. While social psychologists may refer to different attitudes, motivations and behaviors, (behavioral) economists adhere to concepts like utility, aversions and preferences. In contrast to social psychologists, behavioral economists sometimes ask people to attach a price to things (in the form of willingness-to-pay or willingness-to-accept) or develop utility functions that express people’s preferences mathematically.

Behavioral economists’ attachment to the concepts of utility is undoubtedly a core differentiator from psychologists. This can be seen in papers that look at appeals to social norms, as in Cialdini’s classic hotel towel reuse experiments (see Goldstein et al., 2008). While some economists focus more on the common ground between BE and SP with respect to social norms (e.g. Farrow et al., 2017), others mathematically model the “disutility of deviating from the norm” (Kallbekken et al., 2010) or the “moral payoff” of following the norm (Ferraro & Price, 2013).

Cialdini’s next point is as follows:

Second, behavioral economists still have to fight the rationality-versus-irrationality-of human-behavior battle (Rosalsky, 2018). For example, to ensure that interpretations based in neoclassical economic theory are duly addressed, they are more likely than social psychologists to include in their research designs at least one condition involving a rational actor prediction. For their part, social psychologists have no such need, having long ago come to concur with Rabelais’ six-century-old observation regarding the pervasiveness of human illogic: “If you wish to avoid seeing a fool, you must first break your mirror.” As an aside, I once asked Richard Thaler’s opinion of why proponents of neoclassical economic thinking have been so reluctant to admit to the frequent irrationality of our species. He thought it was partially due to the elevation within economics of mathematical modeling, which works best at incorporating rational rather than irrational elements—and remains the professional standard, conferring status on the modeler.

John Stuart Mill

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The second point listed by Cialdini is crucial to the distinction between SP and BE. Even if the two fields’ interests may be converging to some extent, the fundamental assumptions about human nature in their core disciplines (economics and psychology) are quite different. The reference point for BE is the rational agent–neoclassical economics’ homo economicus (the ‘economic man’ referred to by critics of John Stuart Mill–pictured). The field of psychology was never dominated by this notion. A certain level of “irrationality” has been taken as a given in most social sciences.

Why, then, has BE become so appealing, even among psychologists? The main reasons are down to the research field’s useful theories (ranging from loss aversion to time discounting), its rigorous experimental approach, as well as new applications to behavior change.

But it’s also been about timing, storytelling and perception. BE’s focus on experimental research that shows how people really behave rather than how they should behave fit the growing call for evidence-based policy making and management (e.g. Rynes & Bartunek, 2017). For non-academics (and arguably academics as well), the evidence presented by BE told a compelling story about the “predictably irrational” (Ariely, 2008) nature of human decisions, sprinkled with many fascinating insights and aha moments. Even though psychology has always taken human irrationality seriously, economics has probably had a more influential role in many areas, such as public policy, due to its image as the more “scientific” discipline. That isn’t a bad thing: The popularity of BE undoubtedly reinvigorated the relevance of SP through interdisciplinary and practically oriented behavioral science.

This brings me to Cialdini’s third point:

Finally, behavioral economists are more likely to test their hypotheses in large scale field studies of consequential behaviors observed in real world settings—versus in laboratory investigations of relatively inconsequential personal choices made on a keypad. Why social psychologists have tended to stay tenaciously in the laboratory has multiple answers. Convenience, quick and plentiful outcomes to be submitted for publication, and the ability to collect ancillary data for mediational analyses have all played a role. But, much like Thaler’s view of what occurred within economics, a reputational factor may be involved. Academic social psychology evolved from a discipline that many considered insufficiently rigorous (until 1965, its flagship publication was the Journal of Abnormal and Social Psychology) into one that fought for stature as scientifically-based rather than clinically-based. If it is true that many economists have clung to financial rationality because of the prestigious mathematical trappings of econometric models, perhaps many social psychologists have clung to the laboratory because of its prestigious links to rigorous science.

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In other words, while experimental methods are the center of quantitative behavioral science in both BE and SP, BE’s quest to make economics more human has opened the discipline up to real-world research settings. Even though some of BE’s work still relies on abstract models and lab experiments, it is a natural ally of field experiments–taking empirical research to settings where decisions are actually made. As Cialdini notes, SP’s fondness of the lab may well be due to the association with well-controlled lab experiments. As I recently read in a remark about Cialdini’s BE/SP distinction, this is quite ironic, considering the replication crisis that has afflicted SP in recent years.

Given all these differences, what do BE and SP have in common other than their interest in the experimental study of human behavior? The psychologist Daniel Kahneman once remarked that social psychologists are particularly good at understanding the effect of context on human behavior. This focus on contextual factors, many believe, is also at the heart of BE.