When economics meets psychology

When economics meets psychology

The capitalist economic system we are traversing has been ingrained by the imperative of economic growth – culturally, politically, and institutionally (Kovacic et al., 2021). In that context, the notion of consumerism emerged, denoting the inclination of individuals towards unbridled materialistic lifestyle, revolving around lavish or conspicuous overconsumption. From economic point of view consumerism is perceived as a positive dynamic which spurs economic growth, and overall, the excessive material possessions are contributing positively to one’s wellbeing and happiness. And the paramount proposition beneath the hyped consumer culture is that – more is always better. Make more money, more travels, own more material goods, purchase more cars, apartments. But is it?

Going back to one of the basic macroeconomic laws, this premise is brought into question.  Namely, the law of diminishing marginal utility states that ceteris paribus as consumption is increasing, the marginal utility derived from each additional unit decreases; where utility is economic denomination of satisfaction or happiness, and marginal utility is the incremental rise in utility resulting from the consumption of one additional unit. In short, the more units we consume the more our enjoyment declines.

Looking at the same premise through a psychological lens is also challenging it. One of the collective assumptions of the developed societies nowadays is that the more choices we have, the more freedom we have, and the more freedom we have the more welfare we have. A syllogism which implies a positive relation between the increased number of choice and increased wellbeing (Piasecki and Hana, 2011). Surprisingly, this unprecedented plethora of choice made people ultimately less satisfied with their decisions – a contradiction coined by Schwartz as the paradox of choice.  And while technological and social advances are overloading the society with more available options than any other generation ever had so far, this abundance of choice is actually leading to less satisfied consumers doubting that they made the right choice, because they are aware of all the other choices they are forfeiting (Schwartz, 2004). Going back to microeconomic theory – they are aware of the potential opportunity cost they are sacrificing. As Schwartz (2004) states: Learning to choose is hard. Learning to choose well is harder. And learning to choose well in a world of unlimited possibilities is harder still, perhaps too hard”.

According to Kovacic et al. (2021) our society is encountering limits to growth because growth is reflected in economic activities and material consumption. And when this debate is placed in the sustainability arena under the pressing climate change challenges, it becomes even more problematic. The socio-technical imaginary of circular economy proved to have limited potential to sustainability (Kovacic et al., 2019). And since the utopian avenue of absolute decoupling of economic growth from resource consumption is not happening, we need alternative avenues on growth – such as degrowth, post-growth, green growth, doughnut economics (Kovacic et al., 2021). As put forward by Kovacic et al. (2021) we need to think “how can society develop and grow in quality (e.g. purpose, solidarity, empathy), rather than in quantity (e.g. material standards of living), in a more equitable way”? And as a matter of fact, this could be our opportunity for a fundamental shift not only in priorities but also in values. The Europe’s new agenda for sustainable growth can be the opportunity to reconstruct the European society into a society that consumes less and grows in other than material dimensions. What is essential is to build a unifying narrative of – less is more!

Kovacic, Z., Strand, R., Funtowicz, S., Benini, L. and Jesus, A. (2021). Growth without Economic Growth. Sustainability Transitions – European Environment Agency. Available at: https://www.eea.europa.eu/publications/growth-without-economic-growth [Accessed 29th January 20200].

Kovacic, Z., Strand, R. and Völlker, T.  (2019). The Circular Economy in Europe: Critical Perspectives on Policies and Imaginaries, Routledge.

Piasecki M. and Hanna S. (2011). A Redefinition of the Paradox of Choice. Design Computing and Cognition ’10. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-0510-4_19

Schwartz, B. (2004) Paradox of Choice. HarperCollins Publishers, New York.