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Journal of Economic Psychology 29 (2008) 777791

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Journal of Economic Psychology


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Economics and psychology: Economic psychology according to James Mill and John Stuart Mill
Karl-Erik Wrneryd *
Stockholm School of Economics, P.O. Box 6501, S-11383 Stockholm, Sweden

a r t i c l e

i n f o

a b s t r a c t
James and John Stuart Mill contributed to shaping both political economy and academic psychology. Their main publications in economics and psychology reected the state of the art in both sciences and gave new impetus to the thinking. The paper examines to what extent they used academic psychology in their economic writings and economics in their psychological writings. The upshot is that there was little cross-fertilization. The psychological assumptions underlying economics, economic psychology in its basic sense, were in their treatment based on common-sense psychology and not on academic psychology. In his treatise on psychology in which he reviewed current academic psychology, James Mill devoted some chapters to motives related to money and wealth. He thus approached economic psychology in a psychological context. His son John Stuart succinctly formulated the idea of the economic man and explored in depth the simple psychological law that a greater gain is preferred to the smaller. He propounded an important division of labor between economics and psychology. 2008 Elsevier B.V. All rights reserved.

Article history: Received 30 March 2006 Received in revised form 3 February 2008 Accepted 13 March 2008 Available online 18 March 2008

JEL classication: A12 B31 P16 PsycINFO classication: 2140 2630 Keywords: Economic man Economic psychology Political economy

1. Introduction 1.1. Purpose of the paper Critics of the rationality postulate in economics often point to scientic psychology as support for criticism and as a possible resource for remedies. Cross-fertilization between the elds of economics
* Tel.: +46 86409076. E-mail address: karl-erik.warneryd@hhs.se 0167-4870/$ - see front matter 2008 Elsevier B.V. All rights reserved. doi:10.1016/j.joep.2008.03.001

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and psychology rarely occurred when the sciences started developing in the 19th century. Interaction may have been possible since some prominent economic thinkers also made noteworthy contributions towards developing the science of psychology. James Mill (17731836) and his son John Stuart Mill (18061873) were outstanding among those and contributed to shaping both political economy and academic psychology. They used economics slightly more in their work on psychology than they applied psychological science in economics. The paper briey reviews their contributions to economics and psychology with a view to clarifying how they looked at the borderlines between the two elds. In 1836, John Stuart Mill formulated the basic tenets of economics and proposed a strict division of labor between economics and psychology. His ideas are today still reected in mainstream economic thinking. The paper begins with a few remarks on the purpose of looking at the history of relationships between economics and psychology, often referred to as economic psychology. They are followed by reviews of James Mills and John Stuart Mills contributions to economics and to psychology. The paper then focuses on the Mills treatment of expectations, motives, and the love of money and wealth; these are concepts and theoretical notions that are still of use in both economics and psychology. It is concluded that the Mills nuanced discussion of expectations still has something to add to the understanding of anticipation of the future. The saving motives that the Mills suggested have kept their standing in economic psychology. The topic of love of money and wealth has up to our days been sadly neglected in both economics and psychology and has much to gain from a study of the Mills psychological writings. 1.2. Why look back on history? Writing a paper on the history of economic psychology seems to require an excuse for an apparent waste of time. When Stigler (1950) published his much-cited paper on the history of utility analysis he felt obliged to defend his work by explaining why: Or one may, and most often does, simply set forth the major steps in the development of a branch of economic theory, hoping that it can be justied by its contribution to the understanding of modern economics. . ..I review the history to answer the question, Why do economists change their theories? (Stigler, 1950, p. 307). In my case, the question is rather, Why do economists not change their theories? Reviewing history to me means looking for invariants of human behavior as well as invariants of thinking about human behavior (cf. Simon, 1990). The topic here involves tracing some of the early roots of economic psychology. Why is this worthwhile? Beside the fact that history, at least to some, may be interesting in itself the study yields material for building a perspective that may be useful for researchers and practitioners in the eld. The study, for example, of anticipations and expectations and their relationships to memory can prot from the Mills thinking. To better understand the role that the future plays in human experience we have to return to history! 2. James Mill: Historian, economist and then psychologist 2.1. Political economy with common-sense psychology James Mill (JM) who in his youth after his university studies worked mainly as a free-lance writer and journalist is known for three major works: (1) The History of British India, (2) Elements of Political Economy (Elements), and (3) Analysis of the Phenomena of the Human Mind (Analysis). He is also known for the stringent education of his son John Stuart (JSM) who described it in his famous Autobiography. JMs books and a number of published articles made him outstanding rst in the eld of political economy and later in social philosophy and psychology. His early work on India led to an appointment as Examiner of Indian Correspondence with the East India Company. His task involved preparing dispatches: Those despatches, in conjunction with his History, did more than had ever been done before to promote the improvement of India, and teach Indian ofcials to understand their business (Mill, 1873, p. 28). JM stated the purpose of the Elements (Mill, 1821), his main work on political economy, as follows: My object has been to compose a school-book of Political Economy, to detach the essential principles of the science from all extraneous topics, to state the propositions clearly and in their logical

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order, and to subjoin its demonstration to each. I am, myself, persuaded, that nothing more is necessary for understanding every part of the book, than to read it with attention; such attention as persons of either sex, of ordinary understanding, are capable of bestowing (Mill, 1821, Preface). He wanted to give a state-of-the-art review of political economy for readers without special knowledge in the eld and he gave a very simple denition of the eld: Political Economy is to the State, what domestic economy is to the family. The family consumes; and, in order to consume, it must supply. Domestic economy has, therefore, two grand objects; the consumption and supply of the family. The consumption being a quantity always indenite, for there is no end to the desire of enjoyment, the grand concern is, to increase the supply. . . The same is the case with Political Economy. It also has two grand objects, the Consumption of the Community, and that Supply upon which the consumption depends. Those things, which are supplied without the intervention of human labour, as nothing is required in order to obtain them, need not be taken into account. Had every thing, desired for consumption, existed without human labour, there would have been no place for Political Economy (Mill, 1821, Introduction). In this view, political economy concentrated on economic phenomena that were connected with human labor in supplying goods. The statement there is no end to the desire of enjoyment was the closest JM got to psychology in this denition, a common-sense observation rather than academic psychology. He held the belief that people were myopic in the sense that they preferred present enjoyment and underestimated the future utility of goods. His view was one of the earliest articulations of the time preference idea. JMs system of political economy was closely allied to that of Ricardo and Bentham who were close friends of his. He fully accepted Benthams pleasurepain philosophy and the doctrine that human actions were motivated solely through self-interest. In seeking to outline a comprehensive political economy, he included a treatment of ethical and psychological questions at a practical level. In this context, psychology was represented by his own and others everyday observations and introspection rather than contemporary philosophical psychology. Agreeing with utilitarianism, JM was preoccupied with the circumstances that led to maximum happiness for the individual and the nation. He found that middling fortunes and freedom from the necessity of manual labor were prerequisites for maximum individual happiness. Society was indebted for its greatest improvements to those who possessed these characteristics: the men to whom society is generally indebted for its greatest improvements, are the men, who, having their time at their own disposal, freed from the necessity of manual labour, subject to no mans authority, and engaged in the most delightful occupations, obtain, as a class, the greatest sum of human enjoyment. For the happiness, therefore, as well as the ornament of our nature, it is peculiarly desirable that a class of this description should form as large a proportion of each community as possible (Mill, 1821, p. II.II.60). It sounds like an accolade to the middle classes. 2.2. Psychology with a pinch of economic behavior In Analysis which, after six years of work in his spare time, JM published in 1829, he analyzed the concept of consciousness and treated the distinction between sensation and perception, a classical psychological question for philosophers to ponder. The purpose of the Analysis was described in the Preface (written much later by the Editor JSM, for the revised edition, in 1869): It is an attempt to reach the simplest elements which by their combination generate the manifold complexity of our mental states, and to assign the laws of those elements, and the elementary laws of their combination, from which laws, the subordinate ones which govern the compound states are consequences and corollaries. (Mill, 1869, Preface, p. X) In his Analysis, JM summed up most of the contemporary thinking in psychology. While the Elements was meant to be a simple survey that could be read by people of ordinary understanding, the aim of the Analysis was clearly scientic and aimed at those who were already conversant with

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the subject. The revised version (1869) was made more up-to-date and scientic through frequently inserted comments by the Editor JSM, Alexander Bain and two other psychologists. The study was philosophical and based on empirical research in the sense of introspection, and the authors own and other philosophers observations, with an occasional reference to physiology. JM himself described it as based on thinking and observation. The work ended with an appeal for achieving theory in its original sense of viewing or observing and recording matters observed correctly and not replacing it with setting down matters supposed as matters observed (Mill, 1829, p. 4023). The two volumes contained twenty-ve chapters. JM made sensations and ideas the fundamental classes of elements, and the rst two chapters deal respectively with these elements. The third chapter is on the association of ideas. The remaining 22 chapters-deal with consciousness, conception, imagination, classication, abstraction, memory, belief, ratiocination (reasoning), evidence (belief or antecedent of belief), reection, pleasure, pain, will, intention and related topics. The list is worth giving because it shows how the scope of psychology was becoming xed in convention, and some such convention we still have with us (Boring, 1950, p. 221). There was a beginning of a new economic psychology as JM dealt with the pervasive human desire for money and wealth and in associationist terms discussed some economic implications of the pleasurepain principle that he shared with Bentham. The fact that he here treated economic behavior is hardly remarked in the history of psychology and the Analysis is neglected in the history of economics, except by Dickinson (1922). With respect to academic psychology, the main contribution of the Analysis was the combination of the ideas of associationism with the pleasurepain principle of utilitarianism. The principle of association started with supposedly irreducible mental elements and assumed that learning and the development of higher processes mainly consisted in the combination of those elements as a consequence of similarity, contrast, or contiguity. JM formulated associations as mechanical laws that tied together sensations and more complex mental entities. In JMs two classes of mental elements, ideas followed when sense data were removed. Sensations were of three kinds: pleasurable, painful, and indifferent. Many sensations were in fact indifferent. Every sensation left a trace of some kind, an image that could be aroused after the sensation was over. Differences in strength of associations were explained by how frequent and vivid the phenomena were. The more often the conjunction occurred, the stronger the association became. The more vivid the events or objects in contiguity, the stronger their relationship would be. Similar ideas were expounded by, for example, Rae (1834), Bhm-Bawerk (1888), and Marshall (1890) in their explanations of why present goods were worth more and had a stronger attraction than similar future goods. Association was a passive process and mind had no creative function according to JMs thinking (Boring, 1950). Sensations occurred in a certain way; they were reproduced mechanically as ideas in that same order, one following the other. This brought associationism very close to becoming logical analysis. For JM, creative thought was nothing more than a rearrangement of previous experiences or ideas. Nothing unique could emerge from this structural rearrangement. The thinking of Bain and JSM brought associationism back from this extreme position (Boring, 1950). The elaboration of associationism which was JMs main contribution to psychology appeared after his text on economics and had little inuence on his writings on political economy. Schumpeter (1954, p. 447) asserted that like Hume JM treated economic theory independently of psychological associationism. Its propositions were completely independent of associationist psychology and were just as compatible with any other. Boring (1950) stressed the roles of the Mills and Bain in the 1820s1860s for making it possible for psychology to become a science, the system that was to become the substructure for the new physiological psychology. . . The two Mills and Bain brought philosophical psychology to the point where scientic psychology could take it over (Boring, 1950, p. 219). In a sequence of chapters towards the end of Analysis, JM discussed how motives were formed under the inuence of the pleasurepain principle. All behavior was associated with the desire for pleasure or avoidance of pain. JM even explained family relations as well as friendship and love of country in these terms. He made a special note of the fact that desire was always related to anticipation of the future. A major point in the closing chapters was an emphasis on the role of wealth for happiness. The ubiquitous desire for money was seen as derived from the pleasurepain principle; desire for what money could buy or the end was transferred into desire for money or the means to the desired end.

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Psychologists later called this secondary motivation or functional autonomy: a transfer of attractiveness from the goal to the means for getting to the goal. In Chapter XXI on causes of pleasure, JM said that three remote causes of pleasure were notable and their opposites were the principal instigators of pain. The pleasurable causes were: Wealth, Power, and Dignity. As regards the painful sensations, the corresponding causes were: Poverty, Impotence, and Contemptibility. JM related the causes of pleasure (and correspondingly, the avoidance of pain) to the services of other people. Wealth which was usually accompanied by Power and Dignity made it possible to procure the services of our fellow-creatures (see more below). JM made the usual distinction between involuntary acts or reexes and voluntary acts. Involuntary actions followed immediately upon sensations. Sneezing, breathing, dilation of the pupils, and movement of the internal muscles were mentioned as examples. JM often relied on physiology in this discussion. In two lengthy chapters entitled Will and Intention, JMs interest centered on the explanation of voluntary actions directed towards a conscious end. He made a distinction between will and intention: We are said to intend only a future action. When the action is immediate, we are not said to INTEND, but to WILL it; an action intended, is an action of ours contemplated as future, or certainly to be. (Mill, 1829, Vol. 2, p. 395) JM viewed will as a kind of causal link between ideas and actions. Dickinson (1922) who paid special attention to JMs discussion of the will summarized: . . .the main points are agreed on by his son and Bain. The Will to them is the state of mind immediately preceding an action therefore the cause of the action. (Dickinson, 1922, p. 74). 3. John Stuart Mill on economics and psychology 3.1. The goal of science Most of his life, JSM was like his father employed by the East India Company and ended up in a similar position as Examiner. He was educated by his father and was inuenced by other leading thinkers, notably Bentham and Ricardo. He did not go to a university and had no academic position. After his retirement he was for one period Member of Parliament. He was a prolic writer and had a passionate interest in the status of the social sciences and the politics of liberty. In his works on political economy, psychology loomed in the background of his denition of the area and he outlined a clear division of labor between economics and the academic psychology that was the preoccupation of philosophers and physiologists at that time. In an article rst published in 1836, JSM (1844) discussed the goals of science and framed the basic tenets of political economy. He described the way science advanced: The denition of a science has almost invariably not preceded, but followed, the creation of the science itself. Like the wall of a city, it has usually been erected, not to be a receptacle for such edices as might afterwards spring up, but to circumscribe an aggregation already in existence. Mankind did not measure out the ground for intellectual cultivation before they began to plant it; they did not divide the eld of human investigation into regular compartments rst, and then begin to collect truths for the purpose of being therein deposited; they proceeded in a less systematic manner (Mill, 1844, p. 86). This implied a rejection of purely speculative theory construction regular compartments rst that replaced empirical studies. JM had said similar things at the end of his Analysis. It was a clear favoring of inductive approaches. The main goal of science was to nd general laws with the broadest possible scope; JSM later succinctly explained it as to diminish as much as possible the catalogue of ultimate truths and continued: When, without doing violence to facts, he is able to bring one phenomenon within the laws of another; when he can shew that a fact or agency, which seemed to be original and distinct, could have been produced by other known facts and agencies, acting according to their own laws; the enquirer who has arrived at this result, considers himself to have made an important advance in the knowledge of nature, and to have brought science, in that department, a step nearer to perfection (Mill, 1869, p. V).

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An important aspect of JSMs view on science was the focus on conjunction of antecedents and consequents and the notion of causality. Knowledge about the world was constituted by laws that stated enduring relationships between antecedents and consequents. A law dened the expectation that an event would occur as a consequence of an antecedent event. 3.2. Dening political economy without and with psychology In the Essays, JSM (1844) discussed the denition and scope of political economy and afrmed his conviction that the science should be reality-oriented: If, therefore, Political Economy be a science, it cannot be a collection of practical rules; though, unless it be altogether a useless science, practical rules must be capable of being founded upon it (Mill, 1844, p. 89). His rst denition of political economy cited Adam Smiths The Wealth of Nations: That Political Economy is a science which teaches, or professes to teach, in what manner a nation may be made rich (Mill, 1844, p. 88) According to JSM, this denition which he called vulgar or popular confounded science and art. The second denition fared somewhat better, but was also found decient since political economy was equated with domestic economy: That Political Economy informs us of the laws which regulate the production, distribution, and consumption of wealth. To this denition is frequently appended a familiar illustration. Political Economy, it is said, is to the state, what domestic economy is to the family (Mill, 1844, p. 89). The denition associated the science with an art and should according to JSM be rejected although it was accepted by most instructed men (including his father JM). It claimed too much and made no clear distinction between economic or social and physical dimensions. The third denition ran: The science which treats of the production and distribution of wealth, so far as they depend upon the laws of human nature. It was also formulated: The science relating to the moral or psychological laws of the production and distribution of wealth (Mill, 1844, p. 94). Here psychology came into the picture. 3.3. Division of labor between economics and psychology JSMs last denition introduced a distinct relationship between economics and psychology and distinguished the different tasks of the two sciences: What is now commonly understood by the term Political Economy is not the science of speculative politics, but a branch of that science. It does not treat of the whole of mans nature as modied by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging of the comparative efcacy of means for obtaining that end. It predicts only such of the phenomena of the social state as take place in consequence of the pursuit of wealth (Mill, 1844, p. 97). There was no room for other human features than those having to do with the desire to possess wealth. The social comparisons and inuences on beliefs and expectations that JM had so emphasized in his Analysis did not belong to the eld: Those laws of human nature which relate to the feelings called forth in a human being by other individual human or intelligent beings, as such; namely, the affections, the conscience, or feeling of duty, and the love of approbation; and to the conduct of man, so far as it depends upon, or has relation to, these parts of his nature form the subject of another portion of pure mental philosophy, namely, that portion of it on which morals, or ethics, are founded. For morality itself is not a science, but an art; not truths, but rules. The truths on which the rules are founded are drawn (as is the case in all arts) from a variety of sciences; but the principal of them, and those which are most nearly peculiar to this particular art, belong to a branch of the science of mind (Mill, 1844, p. 95). The primary interest of the science of political economy was focused on human factors relating to the wealth of individuals and nations. It used the psychological laws found in the science of mind to the extent that was necessary for the study of wealth. The restriction meant that there was no interest in psychological factors that inuenced the laws of mind which were relevant to political economy,

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with the possible exception of aversion to labor and the preference for present enjoyment (time preference): [The theory] makes entire abstraction of every other human passion or motive; except those which may be regarded as perpetually antagonizing principles to the desire of wealth, namely, aversion to labour, and desire of the present enjoyment of costly indulgences. These it takes, to a certain extent, into its calculations, because these do not merely like other desires, occasionally conict with the pursuit of wealth, but accompany it always as a drag, or impediment, and are therefore inseparably mixed up in the consideration of it (Mill, 1844, p. 97). JSM wanted to distinguish between what political economy as a science of human behavior needed and the more comprehensive psychology of ethics which comprised dealing with feelings. Morality was an art that was based on rules of conduct. JSM further dwelt on the relationships between political economy, the physical sciences which handled laws of matter, and psychology which grappled with laws of the human mind. Political economy borrowed from the pure science of mind the relevant mental laws and explored their effects: Political Economy, therefore, presupposes all the physical sciences; it takes for granted all such of the truths of those sciences as are concerned in the production of the objects demanded by the wants of mankind; or at least it takes for granted that the physical part of the process takes place somehow. It then inquires what are the phenomena of mind which are concerned in the production and distribution of those same objects; it borrows from the pure science of mind the laws of those phenomena, and inquires what effects follow from these mental laws, acting in concurrence with those physical ones (Mill, 1844, p. 94). 3.4. The economic man Rae (1834) formulated the idea that all humans were driven by the desire of accumulating wealth which was also expressed as the wish for more. Adam Smith (1776) treated the wish for more as a consequence of self-love or self-interest. JSM described the wish for more as a basic psychological law and made it the rm foundation of an economic theory that is still exploring the consequences of this simple fact. The implications of the law came to be known as the economic man. It satised JSMs scientic quest for a general law under which all economic phenomena (at the individual level) could be subsumed. Along these lines he succinctly expressed the basic tenets of political economy: All these operations, though many of them are really the result of a plurality of motives, are considered by Political Economy as owing solely from the desire of wealth. The science then proceeds to investigate the laws which govern these several operations, under the supposition that man is a being who is determined, by the necessity of his nature, to prefer a greater portion of wealth to a smaller in all cases, without any other exception than that constituted by the two counter-motives already specied [aversion to labour and desire of present enjoyment of costly indulgences]. Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed (Mill, 1844, p. 98). The last sentence in the quotation is especially worth noticing. It is a sobering thought both to adherents and critics of economic theory. The simplication to one single motive was necessary since this is the mode in which science must necessarily proceed. It is interesting to note that the psychological law could fail to apply when one of two counter-motives prevailed. The two restraining forces to mans desire for accumulating wealth had also been stressed by JM in his Elements and his Analysis. [Manual] labor was coupled to aversion and served to counteract the wealth accumulation motive and so did the pursuit of present enjoyment at the cost of long-run satisfaction: Political Economy considers mankind as occupied solely in acquiring and consuming wealth; and aims at showing what is the course of action into which mankind, living in a state of society, would be impelled, if that motive, except in the degree in which it is checked by the two perpetual counter-motives above adverted to, were absolute ruler of all their actions (Mill, 1844, p. 97).

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Although political economy only gave room for the single motive of desire of wealth, a lot of consequences ensued with regard to accumulation of wealth, employing the wealth, sanctioning the institution of property, establishing laws to prevent individuals from encroaching upon the property of others by force or fraud, developing contrivances for increasing the productiveness of their labor, and furthering competition (Mill, 1844, pp. 978). In his famous A System of Logic, JSM again reviewed the status of political economy and elaborated on the psychological law. He carefully pointed out that the analysis of economic phenomena should proceed from such a law and the principal outward circumstances: There is, for example, one large class of social phenomena of which the immediately determining causes are principally those which act through the desire of wealth; and in which the psychological law mainly concerned is the familiar one that a greater gain is preferred to the smaller (Mill, 1843, Vol. 2, p. 901). This passage was one of the starting points for Jevonss (1871) new theory of marginal utility which became a standard ingredient in neoclassical economics. While the characterization of the economic man as having only one single motive aroused opposition from some economists, it was soon generally accepted by the profession. Alfred Marshall (1890), for example, defended JSMs use of simple psychology in political economy. JSMs characterization of political economy certainly limited the possibility of using psychology, in particular the philosophical psychology of his time. It actually reduced economic psychology to a focus on how utility or happiness in an economic sense was maximized. Psychological problems as well as ethical concerns entered into the sphere of issues occupying political economists only to the extent that the issues were related to wealth accumulation. In fact, JSM acting as a social philosopher rather than economist held a more open view of political economy. When Comte accused political economists of being narrow-minded, poor scientists, JMs defense was conciliatory: The principal error of narrowness with which they [political economists] are frequently chargeable, is that of regarding, not any economical doctrine, but their present experience of mankind, as of universal validity; mistaking temporary or local phases of human character for human nature itself; having no faith in the wonderful pliability of the human mind (Mill, 1865b, pp. 823). In Logic JSM conceded that since political economists did not consider ethological differences they committed the gross error of restricting themselves to AngloSaxon conditions. People having other nationalities might be less inclined to prefer more to less of money (but possibly more to less of other attractions): . . .those who know the habits of the Continent of Europe are aware how apparently small a motive often outweighs the desire of money-getting, even in the operations which have money-getting for their direct object (Mill, 1843, Vol. 2, p. 906). 3.5. John Stuart Mill on psychology There is little psychology besides everyday observation in the Principles, but as already noted JSM claimed that solely psychological factors in the accumulation of wealth belonged under political economy. Although he dened and described psychology in many contexts he never entered into any great detail. He still made an essential contribution to psychological associationism by adding the idea of the creative mind that did not only rehash sensations and ideas. He devoted a chapter to psychology in his Logic where he dened it: The subject, then, of Psychology, is the uniformities of succession, the laws, whether ultimate or derivative, according to which one mental state succeeds another; is caused by, or at least, is caused to follow, another. Of these laws, some are general, others more special(Mill, 1843, Vol. 2, p. 852). The rst law was that every mental impression has its idea. He then accounted for the laws of association: The rst is, that similar ideas tend to excite one another. The second is, that when two impressions have been frequently experienced (or even thought of) either simultaneously or in immediate succession, then whenever one of these impressions, or the idea of it, recurs, it tends to excite the idea of the other. The third law is, that greater intensity in either or both of the impressions, is equivalent, in rendering them excitable by one another, to a greater frequency of conjunction (Mill, 1843, Vol. 2, p. 852).

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These elementary Laws of Mind had been ascertained by the ordinary methods of experimental inquiry. It should be noted that JSM provided strict methods for establishing causal relations when examining observations. His inductive (experimental) methods for discovering scientic laws were inuential and are still worth remembering. (Mill, 1843, Vol. 1, 388ff.) Careful observation that led to simple laws gave practical results: The phenomena of the Mind included multitudes of facts, of an extraordinary degree of complexity. By observing them one at a time with sufcient care, it is possible in the mental, as it is in the material world, to obtain empirical generalizations of limited compass, but of great value for practice (Mill, 1869, Preface, p. vii). This can be seen as a recommendation for detailed, empirical study of psychological phenomena. According to Comte, psychology could not be counted as an empirical science; it belonged under metaphysics (Mill, 1865b). In his Logic which contained a chapter entitled Of the Laws of Mind, JSM already complained that Comte classied the moral and intellectual phenomena as the proper pursuit of physiologists and that he put philosophical psychology on a par with astrology, a classication JSM did not accept. In the volume on Hamiltons philosophy, JSM devoted a chapter to the science of psychology which was later included as an appendix to the rst volume of the new edition of his fathers Analysis. Many of JSMs (and Bains) important ideas were published as comments added to JMs Analysis. In Logic, JSM noted that the phenomena of mind are sometimes analogous to mechanical, but sometimes also to chemical laws. (Mill, 1843, Vol. 2, p. 853). By mental chemistry he denoted: . . .cases of mental chemistry: in which it is proper to say that the simple ideas generate, rather than that they compose, the complex ones. (Mill, 1843, Vol. 2, p. 854). He thus modied his fathers strict mechanical associationism and admitted that the mind was an active, not a passive, thing that could create new syntheses and make discoveries of causal relationships. This meant a signicant step from mental mechanics to mental chemistry (Boring, 1950). 4. A closer look at the economic psychology of the two Mills The Mills were scholars who made contributions to economics and psychology. It is interesting to compare their use of certain concepts in the two elds. The comparison yields the result that when they used concepts with potential psychological meaning in their economic texts they used those in their everyday sense and made no psychological interpretation. They did not attempt to enrich political economy by looking for psychological causes or inuences. Here are three concepts that were used with little explanation in their political economy texts and with psychological interpretations in psychological contexts: expectations, motives, and (love of) money and wealth. 4.1. The role and formation of expectations In Elements, JM occasionally referred to expectations, always in an everyday sense. Expectations were treated as if they were mostly based on observations in the past. While the word belief was frequently used in the psychological texts it did not appear in Elements. In Analysis, JM spent considerable time on individual expectations, mostly called anticipations, of future pleasures and pains. He noted that expected pleasures or pains should not only be treated as equal to already experienced sensations. Taking love of wealth as an example he distinguished expectations from memories of past sensations: It is very obvious, that we ought to have two names for each cause; for example, one, to mark the state of mind, when wealth is contemplated as the past cause, of past sensations, and one to mark the state of mind, when it is contemplated as the future cause of future sensations (Mill, 1829, Vol. 2, pp. 21213). JM did not specify in detail how past sensations of pain or pleasure were related to expectations of the future, but he observed that associations of antecedents and consequents were differently involved in memory and anticipation: The anticipation of the Future is the same series of association; with this difference, that, in memory, the association of the train of consciousness, which converts the idea into memory, is from consequent to antecedent, that is, backwards; the association in the case of anticipation is from antecedent to consequent, forwards (Mill, 1829, Vol. 2, p. 197).

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Furthermore, to the concept of anticipation which was essentially projected belief JM added the idea of uncertainty and thus connected it with a kind of subjective probability: We have seen what is the state of consciousness, produced by the contemplation of a pleasurable sensation as future; that it is called Joy, if the pleasure is contemplated as certainly future, in other words, believed; that it is called Hope, if the sensation is contemplated as not certainly future, that is, if the anticipation does not amount to belief (Mill, 1829, p. 257). The Editor JSM found that his father was not quite clear about the difference between pure imagination and anticipation and in a footnote he suggested: The difference between Expectation and mere Imagination as well as between Memory and Imagination, consists in the presence or absence of Belief; and though this is no explanation of either phenomenon, it brings us back to one and the same real problem, which I have so often referred to, and which neither the author nor any other thinker has yet solved the difference between knowing something as a Reality and as a mere Thought; a distinction similar and parallel to that between a Sensation and an Idea (Mill, 1829, Vol. 2, pp. 198199, footnote). As JSM suggested in the footnote imagined things could be believed to be reality which implies the possibility of a difference between interpretation of the past and expectation of the future. Nowadays, a distinction is often made between contingent expectations and intentional expectations (see, e.g., Wrneryd, 1999). JM noted that the anticipated consequences could be independent of or contingent on our own actions: In contemplating pains and pleasures as future; in other words, anticipating them, or believing in their future existence; we observe, that, in certain cases, they are independent of our actions; in other cases, that they are consequent upon something which may be done, or left undone by us (Mill, 1829, Vol. 2, p. 256). Our expectations could involve actions to change the course of events. In point of fact, JM dened intention to act as the strong anticipation of a future will. Expectation was thus not exclusively based on past experience, but had something to do with will and disposition to action: When the idea of the Pleasure is associated with an action of our own as its cause; that is, contemplated as the consequent of a certain action of ours, and incapable of otherwise existing; or when the cause of a Pleasure is contemplated as the consequent of an action of ours, and not capable of otherwise existing; a peculiar state of mind is generated which, as it is a tendency to action, is properly denominated MOTIVE (Mill, 1829, Vol. 2, p. 258). In his Principles, JSM talked about expectations of prots and rising prices and actions inspired by those; all were experience-based expectations. He apparently assumed that expectations were formed on the basis of past and present experience and consisted of associations involving causal links and mental models. Here is an example: And the willingness of a dealer to use his credit, depends on his expectations of gain, that is, on his opinion of the probable future price of his commodity; an opinion grounded either on the rise or fall already going on, or on his prospective judgment respecting the supply and the rate of consumption (Mill, 1848, Vol. 2, p. 554). JSM (1865a) was more explicit about the psychology of expectations in his treatise on Hamiltons philosophy. Expectation was there seen as the conception of possible sensations and the formation of expectation was fundamental to psychology: It postulates, rst, that the human mind is capable of Expectation. In other words, that after having had actual sensations, we are capable of forming the conception of Possible sensations; sensations which we are not feeling at the present moment, but which we might feel, and should feel if certain conditions were present, the nature of which conditions we have, in many cases, learnt by experience (Mill, 1865a, p. 177). Expectations were in many cases, but not always, formed as consequences of earlier sensations. In an earlier context, expectation was used in a wider sense to refer to connections between facts rather than sensations:

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Many of the uniformities existing among phenomena are so constant, and so open to observation, as to force themselves upon involuntary recognition. Some facts are so perpetually and familiarly accompanied by certain others, that mankind learnt, as children learn, to expect the one where they found the other, long before they knew how to put their expectation into words by asserting, in a proposition, the existence of a connexion between those phenomena. No science was needed to teach that food nourishes, that water drowns, or quenches thirst, that the sun gives light and heat, that bodies fall to the ground (Mill, 1843, Vol. 1, p. 318). This passage suggests that some, even many expectations are hard to shake or change because of involuntary recognition and lifelong experiences of connections between phenomena. How do we, for example, form optimistic expectations when we have had negative experiences in the past? JSM asserted that expectations could deviate from past experience: . . .it must be admitted, that even when we have no knowledge whatever to guide our expectations, except the knowledge that what happens must be some one of a certain number of possibilities, we may still reasonably judge, that one supposition is more probable to us than another supposition; and if we have any interest at stake, we shall best provide for it by acting conformably to that judgment (Mill, 1843, Vol. 1, p. 535). Economic expectations were for many years primarily studied through extrapolation of time series of earlier developments, using objective rather than subjective data. Little attention was paid to the psychological nuances proposed by the Mills. The idea of economic expectation formation through handling knowledge or information was not accepted until rational expectations theory was launched in the 1960s (Muth, 1961). Except in Gestalt psychology, which guided Katona (1951) in his surveys of consumer expectations, the concept of expectation was rarely used in scientic psychology before the cognitive revolution in the 1960s. A reason for the disregard is suggested by Boring (1950). He described hedonism of the past: This is the principle that action which leads immediately to pleasure is impressed and remembered and so repeats itself as habit, whereas action which leads immediately to pain is not impressed and is perhaps even suppressed from later reproduction (Boring, 1950, p. 706). The experimental psychologists adopted this hedonism which led to a dominance of learning theories based on past experience in terms of reinforcement (rewards and punishments) as illustrated by the law of effect of Thorndike. There was little place for anticipations of the future. And behaviorism had no room for subjective concepts like expectation. 4.2. Motives, in particular for saving In the Analysis, the frequently used word desire always had a connotation of a future end. Beliefs based on earlier conjunctions of antecedent and consequent events were projected onto the future and formed expectations which when linked to actions could become motives. A motive was an association between an affection the association of the idea of the object as Cause, with that of our pleasures as effect and an action that was expected to satisfy the desire. JM stressed the driving force of human motives. He made an evaluation of the possible roles of a number of motives in addition to the direct causes of pleasure such as food and drink. He treated, for example, family, friends, country, and mankind as affections and possible motives. In the Elements, JM frequently used motive in explaining economic phenomena. It simply meant reason and was not linked to the elaborate psychological treatment of motive in the Analysis. The motives for saving that were treated in some detail were related to common-sense notions with no reference to academic psychology. The gist of JMs reasoning on savings was that capital had a tendency to increase less than population due to lack of ability or motives to save: In the case, in which there is a class reduced to necessaries, and a class of rich, it is evident that the rst have not the means of saving. A class of rich men, in the middle of a class of poor, are not apt to save. The possession of a large fortune generally whets the appetite for immediate enjoyment. (Mill, 1821, Chapter II, II.II.29). Nor did a second type of society promote saving: . . .the state of the social order, in which a large share of the annual produce is distributed among the great body of the people. In that situation, neither the

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class which labours, nor that which is maintained without labouring, has any forcible motives to save. (Mill, 1821, Chapter II, II.II.30). With respect to the class which labours JM noted: There are two sets of men; one, in whom the reasoning power is strong, and who are able to resist a present pleasure for a greater one hereafter; another, in whom it is weak, and who can seldom resist the charm of immediate enjoyment. Of course, it is not in the latter class that the motive to save can be expected to prevail. The class, on the other hand, in whom reason is sufciently strong to form a due estimate of pleasures, cannot fail to perceive that those which they can obtain by adding penny to penny, after all the rational desires are satised, are not equal to the pleasures which, in the circumstances we have supposed, they must relinquish to obtain them. Both the higher and the lower principles of our nature are in such circumstances opposed to accumulation. So far, as to the strength of the motive which, in the supposed circumstances, can operate upon the labouring class. (Mill, 1821, Chapter II, II.II.31). JM held that the really wealthy had little reason or motive to save. More consumption could not increase their enjoyment of life. Power over others and surplus means for bequests were their main motives for accumulating capital. Workers had little ability to save and tended to give in to present enjoyment. He gave the following advice to governments so as to add to capital: It remains to inquire by what means it [legislation] can strengthen the tendency in capital to increase. These are, also, direct and indirect. As the legislature, if skilful, has great power over the tastes of the community, it may contribute to render frugality fashionable, and expense disgraceful. The legislature may also produce that distribution of property which experience shows to be the most favourable to saving. Sumptuary laws have been adopted in several countries; but it is not easy to contrive sumptuary laws, the effect of which would be very considerable, without a minute and vexatious interference with the ordinary business of life (Mill, 1821, Chapter II, 150). How does legislation make frugality fashionable and expense disgraceful? Modern sumptuary laws operate with differentiated taxes on goods and services. Some further guidance may be found in what JSM said about the primary motives for saving in his Principles; the prot, precaution, old-age, child support, and bequest motives which were later cited by many authors (e.g. Marshall, 1890) were all there: There would be adequate motives for a certain amount of saving, even if capital yielded no prot. There would be an inducement to lay by in good times a provision for bad; to reserve something for sickness and inrmity, or as a means of leisure and independence in the latter part of life, or a help to children in the outset of it (Mill, 1848, Vol. 2, p. 737). He added an observation that has too rarely been explored in the economicpsychological discussion of saving motives, namely that there was a difference in (macro) effects between short-term and long-term goal saving: Savings, however, which have only these ends in view, have not much tendency to increase the amount of capital permanently in existence. These motives only prompt persons to save at one period of life what they purpose to consume at another, or what will be consumed by their children before they can completely provide for themselves. The savings by which an addition is made to the national capital, usually emanate from the desire of persons to improve what is termed their condition in life, or to make a provision for children or others, independent of their exertions (Mill, 1848, Vol. 2, p. 737). The major usefulness of savings lay in their being invested. JSM (1843, Vol. 2, p. 781) objected against the myth that prodigality was public benet and lauded the often unnoticed use of savings for investment. In Principles, he accordingly discussed the consequences of taxing savings or wealth. He rejected the double taxation of savings and opposed the argument that savings belonged to the rich and that those could afford to pay. He declared that the savings of the rich were useful since they went into productive investments that provided work for the less rich (Mill, 1848, Vol. 2, p. 816).

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In a similar vein, JSM touched on another problem that is still debated in modern welfare states. He advised against the use of inappropriately high benets in social welfare: if the receiver of the benets was brought to the same level as a laborer this would produce a neglect of industry: If the condition of a Person receiving relief is made as eligible as that of the labourer who supports himself by his own exertions, the system strikes at the root of all individual industry and self-government; and, if fully acted up to, would require as its supplement an organized system of compulsion, for governing and setting to work like cattle, those who had been removed from the inuence of the motives that act on human beings. But if, consistently with guaranteeing all Persons against absolute want, the condition of those who are supported by legal charity can be kept considerably less desirable than the condition of those who nd support for themselves, none but benecial consequences can arise from a law [the Poor Law of 1834] which renders it impossible for any person, except by his own choice, to die from insufciency of food (Mill, 1848, Vol. 2, p. 961). 4.3. The love of money and wealth The importance that men attributed to money and wealth was observed by many economists before the Mills (e.g. Rae, 1834; Smith, 1776). While the concepts of money and wealth were frequently used in both the Elements and in the Principles they rarely had any psychological overtones, except that the Mills always underlined the importance of money. In his notes on savings, JM concluded that people spent money rather than held it: . . .no man wants money but in order to lay it out, either in articles of productive, or articles of unproductive consumption (Mill, 1821, Chapter IV, IV.III.16). JMs main ideas about the use of money appeared in the Analysis. There he expounded on the love for money and wealth an expression not to be found in the Elements as one of the fundamental forces in human life: [Money is] instrumental in procuring the causes of almost all our pleasures, and removing the causes of a large proportion of our pains, [money] is associated with the ideas of most of the pleasurable states of our nature. The idea of an object associated with a hundred times as many pleasures as another, is of course a hundred times more interesting (Mill, 1829, Vol. 2, pp. 206207). In JMs view, the love of money was a normal property of man and was a dominant motive, but it had no appropriate name: The Motive which leads to the acquisition of wealth, great as is the part which it plays in human life, has no appropriate name. Avarice, Rapacity, like the words Gluttony, and Lust, are only names for cases of excess (Mill, 1829, Vol. 2, p. 266). It still seems true that love of money is taken-for-granted, but when it is mentioned it is generally referred to as greed or the less negative, but less inclusive thrift. The desire to accumulate wealth is not covered by any single, politely recognizing word. It is rarely listed high among human motives in psychology texts, though the quest for money is often cited as an example of secondary motivation. The importance of wealth resided in the fact that it conferred power and dignity and made it possible to acquire other mens services. JM propounded that the main function of wealth was to make it possible to acquire the services of other people and saw this as a requisite for the satisfaction a person got from her/his wealth, power, and dignity: One remarkable thing is rst of all to be noticed: the three, above named, grand causes of our pleasures agree in this, that they all are the means of procuring for us the Services of our fellow-creatures, and themselves contribute to our pleasures in hardly any other way. It is obvious from this remark, that the grand cause of all our pleasures are the services of our fellow-creatures; since Wealth, Power, and Dignity, which appear to most people to sum up the means of human happiness, are nothing more than means of procuring those services. This is a fact of the highest possible importance, both in Morals, and in Philosophy (Mill, 1829, Vol. 2, pp. 207208). The pleasure of procurement from others, deemed important for Morals and Philosophy, was supplemented by the satisfaction that social comparisons could lead to:

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It is obvious, that, in the contemplation or our own Wealth, Power, and Dignity, as greater, we include the contemplation of another mans Wealth, Power, and Dignity, as less. As the state of consciousness, thus formed, is called Pride when the reference is to ourselves, it is called Contempt when the reference is to others. When the case is reversed, and a man contemplates his Wealth, Power, and Dignity, as less than those of other men, the state of consciousness is called Humility. As towards the other member of the comparison, the men who possess the greater amount of those advantages, it has the name of Respect, or Admiration (Mill, 1829, Vol. 2, p. 214). Social comparison was essential for the enjoyment of wealth and it served to increase the desire for more: As it is not only of value to me to have more wealth, power, and dignity; but of additional value to have more than other men; the surpassing of other men becomes, thus, a cause of Pleasure; and hence the idea of this surpassing, associated with the ideas of my own acts, as the cause, becomes a Motive (Mill, 1829, Vol. 2, p. 269). In his works on economics, JSM also discussed money and wealth without ever mentioning the idea of love of money and wealth. He dealt with what constituted economic value, the role of money in exchange, and the quantity theory of money. The accumulation of wealth certainly played a role in JSMs view of political economy as is evident in his denition of the eld. In the Principles, he saw the utility of wealth as largely consisting in power: The greatest part of the utility of wealth, beyond a very moderate quantity, is not the indulgences it procures, but the reserved Power which its possessor holds in his hands of attaining purposes generally; and power no other kind of wealth confers so immediately or so certainly as money. It is the only form of wealth which is not merely applicable to some one use, but can be turned at once to any use (Mill, 1848, Vol. 1, p. 6). In other contexts, notably in his treatise on Hamiltons philosophy (Mill, 1865a), in Utilitarianism, and articles on Comtes positivism (Mill, 1865b) JSM also took up money and wealth, now with a main focus on the love of money. His thinking on money and what it purveyed in terms of power and inuence was very similar to what JM maintained in the last chapters of Analysis. In a footnote of Analysis, JSM agreed to the two main driving forces of human behavior: love of money or of power; . . .these are the objects of two of the strongest, most general, and most persistent passions of human nature (Mill, 1829, Vol. 2, p. 234, footnote by JSM). In Utilitarianism, where JSM developed the utilitarian ideas about maximizing happiness, by him often referred to as utility, he concisely described what was later called secondary motivation and functional autonomy of motives in psychology: What was once desired as an instrument for the attainment of happiness has come to be desired for its own sake. In being desired for its own sake it is, however, desired as part of happiness. The person is made, or thinks he would be made, happy by its mere possession; and is made unhappy by failure to obtain it (Mill, 1863, p. 146). This was applicable to the general desire for money and wealth: There is nothing originally more desirable about money than about any heap of glittering pebbles. Its worth is solely that of the things which it will buy; the desires for other things than itself, which it is a means of gratifying. Yet the love of money is not only one of the strongest moving forces of human life, but money is, in many cases, desired in and for itself; the desire to possess it is often stronger than the desire to use it, and goes on increasing when all the desires which point to ends beyond it, to be compassed by it, are falling off. It may, then, be said truly, that money is desired not for the sake of an end, but as part of the end (Mill, 1863, p. 146).

5. Concluding remarks A study of the ideas of the Mills suggests new nuances in approaches and perspectives relating to expectations, motives, and love of wealth. It at least provides a backdrop for considering the taken-forgranted progress of modern thinking in the eld of economic psychology. It is perhaps good to be reminded that many ideas that appear or are thought to be new were extant with more details hundreds of years ago. Economic psychologists who may wonder about the front position of the rationality

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assumption in economics may need being reminded of JSMs assertion that it is simply an interpretation of the common observation that people desire more of what is pleasurable, and that this is a true invariant of human behavior. Then the question arises about what is pleasurable and consequently enters the utility function. Here is a long-standing bone of contention between psychologists and economists. Although economists involved in behavioral economics, especially in the area of nance, are nowadays beginning to include more than nancial variables in the debated utility concept, mainstream economists still seem opposed to doing so. Why have psychologists been so hesitant to study the implications of the desire for more? They have rarely counted it among the major drives affecting human behavior. Both sciences could learn from the Mills discourses on desires and motives. References
Bhm-Bawerk, E.V. ([1888] 1912). Positive Theorie des Kapitales. Dritte Auage. Zweiter Halbband. Innsbruck: Verlag der Wagnerschen Universitts-Buchhandlung. Boring, E. G. (1950). A history of experimental psychology (2nd ed.). Englewood Cliffs, NJ: Prentice-Hall. Dickinson, Z. C. (1922). Economic motives. A study in the psychological foundations of economic theory, with some reference to other social sciences. Cambridge, MA: Harvard University Press. Jevons, W. S. (1871). The theory of political economy. London: Macmillan and Co. Katona, G. (1951). Psychological analysis of economic behavior. New York: McGraw-Hill. Marshall, A. ([1890] 1990). Principles of economics: An introductory volume (8th ed.). London: Macmillan (rst published in 1890). Mill, J. (1821). Elements of political economy. Library of Economics and Liberty. Retrieved from <http://www.econlib.org/library/ MillJames/mljElm1.html>. Mill, J. ([1829] 1869). Analysis of the phenomena of the human mind. In J. S. Mill (Ed.), Vols. 1 and 2. London: Longmans & Co. <http://gallica.bnf.fr>. Mill, J. S. ([1843] 1925). A system of logic, ratiocinative and inductive (8th ed.). Toronto, Canada: University of Toronto Press. Mill, J. S. ([1844] 2000). Essays on some unsettled questions of political economy. Kitchener, Ont.: Batoche, Electronic Resource (rst edition 1844). Mill, J. S. ([1848] 1985). Principles of political economy: With some of their applications to social philosophy, Vols. 1 and 2. Toronto, Canada: University of Toronto Press. Mill, J. S. ([1863] 1969). On liberty and utilitarianism. London: Everymans Library (Utilitarianism rst published in 1863). Mill, J. S. ([1865a] 1979). An examination of Sir William Hamiltons philosophy and of the principal philosophical questions discussed in his writings. Toronto, Canada: University of Toronto Press. Mill, J. S. ([1865b] 1993). Auguste Comte and Positivism. Bristol: Thoemmes Press. <http://gallica.bnf.fr>. Mill, J. S. (1869). Preface to J. Mill. Analysis of the Phenomena of the Human Mind. Mill, J. S. ([1873] 1981). Autobiography and literary essays. Toronto, Canada: University of Toronto Press. Muth, J. F. (1961). Rational expectations and the theory of price movements. Econometrica, 29, 315335. Rae, J. ([1834] 1905). The sociological theory of Capital. New York: Macmillan. Schumpeter, J. A. ([1954] 1997). History of economic analysis. London: Routledge. Simon, H. A. (1990). Invariants of human behavior. Annual Review of Psychology, 41, 119. Smith, A. ([1776] 1981). An inquiry into the nature and causes of the wealth of nations. In R. H. Campbell, & A. S. Skinner (Eds.), Vols. I and II. Indianapolis, IN: Liberty Classics (rst published in 1776). Stigler, G. J. (1950). The development of utility theory. I. Journal of Political Economy, 58(4), 307327. Wrneryd, K.-E. (1999). The psychology of saving: A study on economic psychology. Cheltenham, UK and Northampton, MA: Elgar.