Economics and Business Forum

Economics and psychology 2

Some people would not go into a business unless they see someone prospering.

But a true entrepreneur is a pathfinder. He goes into a forest where no one has ever been there before.

Probably the question is: Why are some people brave, others timid to venture into businesses. Psychology answers such questions.

Can psychology really help develop a class of entrepreneurs which developing countries such as Malawi need so much?

Authors of motivational books use history, philosophy and psychology to propel people to self-actualisation.

The possibility of earning a profit is an incentive, but there must be something within the person that says: “Yes, I think I can do it.”

Uncertainty about the future is what deters people from making investments. If the maturity date of the bond you take is 10 years away, you cannot be quite sure that the yields will be as valuable as they appear at the beginning. Timid sailors keep nearer the shore instead of venturing into the interior. Risk and uncertainty are like Siamese twins where one goes another follows.

Keynesian economics uses a good deal of psychology. He talks of propensity to save and consume. While normally people with higher incomes are able to save more than those with less income, people of the same level of earnings do not always make equal savings.

One explanation is psychological, the more you accumulate, the more secure you feel.

The theory of liquidity preference is explained with the use of psychology. How much a person earns and decides to keep in cash depends on his personal view of the risk that he sees in keeping his assets in the form they cannot be easily turned into cash.

Those who undertake investments even in conditions of risk and uncertainty are endowed with what Keynes called ‘animal spirits’. Some people keep money in a liquid form (cash or something closer to that) to engage in speculative activities such as buying and selling commodities, hedging and so forth.

Psychological thinking is involved in all this.

Some companies use psychology to improve sales when they either offer six or 12 months guarantees on their items. The guarantee enforces the verbal persuasion.

How do workers achieve higher productivity at workplace? Mostly, it is a result of learning. Those who have been taught how to work so as to produce more will do so, they will also achieve higher productivity through experience.

Training and experience often lead to less than optimum productivity unless they are accompanied with positive motivation.

The worker must bring enthusiasm to his job and this is a matter of psychological feeling.

Because in advertising businesspeople make use of psychology to manipulate the public into buying something they would not have bought in a normal situation, government should enact laws to protect consumers.

Some spokespersons use psychology to give buyers a wrong impression. They mark two prices on an article, a higher and a lower one.

On the higher, they make a mark to suggest that they have reduced the price when in fact they never displaced the higher price in the first place. They deceive the public that there has been a reduction of prices when in fact there has been no such a thing.

Psychology is found useful in times of widespread and grave unemployment. Unemployment makes a person lose not only income but also self-respect.

A job defines a person’s status. When we meet someone for the first time, we like to know how he makes a living.

If one man says he is a watchman, another says he is a lawyer, we, at least, accord different amount of recognition to the two persons.

People who have been unemployed for a long may resort to antisocial behaviour such as robbery or self-immorality, including drunkenness.

Some suffer mental health. All these are problems which can be solved with social psychology.

They begin as economic problems. Similarly, families have broken down because the breadwinner has been unemployed for a long time.

All these situations deserve counselling using psychology as one of the tools.

There is such a thing as fiscal psychology. Topics studied under this include what the authorities can do to save money and secure people’s antipathy.

How do you make a newly introduced tax more acceptable to people and thereby minimise evasion.

Revenue raised through indirect taxes causes less social grumbling. From the advent of British rule in 1891, Malawians were paying what was known alternatively as hut tax or poll.

It was abolished with the advent of multiparty politics.

Since then, it assumed that poor people in Malawi are not paying any taxes. They are actually paying indirectly when they buy goods on which the importer has paid customs duties or on which the manufacturer has paid surtax or value added tax (VAT). Psychology is used here to make the incident of taxation invisible.

If the amount collected through indirect taxes were collected through direct taxes such as poll or personal taxes, there would be resentment against governments

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