Summary: Psychology and Consumer Economics

Today it is being recognised that consumer purchase are dependent not only on consumers
ability to buy but also on the confidence of willingness to buy. The micro data collected in
surveys effectively supplements micro data on GNP. Psychological factors may provide
advance indications of certain forms of consumer spending and saving.

The paradigm of behavioral science consists of developing low-level preliminary hypothesis,

testing them, revising the hypothesis of the results of the test, and testing the new hypothesis
and so on. Instead of searching for a single necessary response to change in income, the
behavioral science studies circumstances under which a stimulus will produce the same or
different response. Although the findings of these studies are not universally valid,
generalizations about the relation of intervening variables to action are possible. They are
presented and four problem areas: Inflation and consumer spending, personal savings in
periods of prosperity and recession, wealth and saving, and saturation with consumer goods.

The basic assumptions of economic theories about the origin of inflation maybe expressed
simply. The conclusion derived from these assumptions is that inflation, general and
sustained increase in the price level, either stimulates or accompanies an increase in
consumer demand. It is also assumed that consumers substitute goods for money and tend to
spend more and save less. However recent studies show that inflation make for postponement
discretionary expenditure and reduces rather than increases the quantity of goods demanded.
The rate of savings is therefore expected to increase in inflationary periods. Inflation was
found to be viewed negatively even by people whose income rose much more than prices
advanced.

People who consider psychological factors may argue an opposition to the traditional view
that motives to save grow when a recession threatens. This results in larger savings at least
among people whose income has not, or have not yet, decline greatly. The relation between
the session and rates of saving must be studied separately for different forms of saving.
Changes in outstanding debt, must be distinguished from net financial savings. On decisions
to save, the postulate is that additions to financial assets vary according to the frequency and
size of income, and the strength of motivations to save. There is no simple answer to the
question about saving more or less and the time of recession. But at any given time, it is
possible to disentangle the circumstances which operate in one or the other direction. In
addition, it is also possible to establish principles about how economic as well as
psychological factors influence savings.

In the light of psychological considerations, however, the conclusion about an inverse

relation between wealth and amount saved appears much less obvious. Two considerations.
Possibility that people with larger said save more than people with small assets. First, some
savings in habits well or is influenced by the gender in personality traits as thriftiness.
Second, levels of aspiration may rise with accomplishment, so that the acquisition of some
reserve funds change the appetite to save more instead of weakening the motives to save.
Increase liquid asset holdings, or greater wealth, do not necessarily reduce personal saving.

Progress and the persistence of belief in progress, have provided a great incentive and the
area of income acquisition and income allocation. Much more needs to be found out about the
origins of feelings of progress and the dynamics of aspirations. Therefore, the redefinition of
what is considered progress and a what serve as an incentive is needed. Whether it would be
accepted and adopted by masses of people represents a crucial problem.