The Relationship between Psychology and Economics: Insights from the History of Economic Thought

Psychological ideas had always played a role on the formation of economic thought as can be seen in the works of many influential pre-classical and classical authors. Up to the beginning of the 20th century, there was almost no methodological objection regarding the incorporation of ideas from psychology into economic theories. After this period, a fundamental shift in mainstream economics took place which is also known as the Paretian turn. This conceptual change, initiated mainly by Vilfredo Pareto and completed with the emergence of the theories of choice in the first decades of the 20th century, attempted to expel all psychological notions from economic theory. However, in the last three decades, the increasing appeal of subjective well-being research and especially of the new behavioral economics, re-brought the topic onto the surface. In order to better comprehend and to contribute to the recent discussion concerning the relationship between the two disciplines, the study of relevant views found in history of economic thought is necessary. The paper starts with a brief sketch of the history of the relationship between economics and psychology, focusing also to the recent literature which points to a reconsideration of this relationship. After an examination of psychological ideas found in influential pre-marginalist writers, the paper discusses the arguments supporting the case for the interaction between the two fields. It also suggests that the work of Richard Jennings can be seen as the peak of the early interaction between economics and psychology. Finally, it considers the relevance of these arguments for the current debate concerning the relationship between economics and psychology.