A recursive correlation between economy and psychology: A specific focus on the new corporate governance theory

Résumé du document

It has always been an intrinsic issue of economy: accused of being disconnected from individuals' reality, this science has been attacked for long times, by various researchers and experts, such as psychologists. And effectively, a plethora of arguments have been provided for integrating greater psychological realism in economics, in order to improve it. Over the years, searchers such as Danny Kahneman, Amos Tversky, Richard Thaler, and more recently Colin Camerer and George Loewenstein, have set in doubts some of the basis of mainstream economics, demonstrating it as psychologically unrealistic. This claim for greater psychological consideration and realism is now providing results and a new science has been defined, in order to combine properly those two fields. Called “Behavioral Economics” or ‘Economic Psychology”, this enhances the profound efforts which has been done to capture and integrate psychologically more realistic aspects of human nature into economic science. And moreover, this science of behavioral economics has also been introduced in the daily economy and in the micro level of organizations, through corporate models, for instance.

Extraits

[...] On the other hand, psychology also copes with some limits. Actually, economic contexts rule individuals' lives, with money, competition, scarcity and self-interested circumstances, among others. In order to seize human behaviours, psychology needs to understand economic situations and exigencies, and project itself in a real-life frame. Thus, there is to take into consideration individuals' unicity, emotions, expectations, and experiences in an involving economic context, in which actors communicate exchange and interact. Psychology could help economic research by discovering and analyzing the forces that operates behind economic processes, economic actions, decisions and choices (Katona, 1951:91). [...]

[...] But, as the author says some emotional bias can occur (if the financial situation of a company is critical and it has to streamline workforce, presence of salaries in board of directors can influence this decision In his thought, the author wants to go far away. He talks about the role of press in the information distribution. He suggests the importance of press as a stakeholder. Today, the financial press is an important actor which reduces cost agency by spreading transparent and reliable information. Here, Agency Costs correspond to both behavioural and traditional Agency Costs. [...]

[...] Let us precisely focus on the new economical field design, which has been drawn by this cooperation between economists and psychologists, through the explanation of the new Corporate Governance Theory. II. When psychological and behavioural research design the economical field A new Corporate Governance Theory The Behavioural Corporate Governance examines the effects of managers', monitors' and investors' behaviour on corporate performance and seeks to provide greater realism in understanding agent behaviour within a corporate governance setting. To study the new increasing incorporation and preponderance of this theory in the organizations' economical overview, we mainly based our analysis on the article published by the professor Charreaux from the Bourgogne University in France, untitled “Toward a behavioural corporate governance theory: an exploratory view cahier du Fargo[1], n°1050601, June 2005. [...]

[...] & Lazonick, W Corporate Governance and the Innovative Economy: Policy Implications. The step group Parades, T.A, Blinded by the light: information overload and its consequences for securities regulation” Washington University law quarterly, vol.81, p.417 Posner R.A Economic analyse of law. Boston: little brown (first edition) Prahalad, C.K “Corporate Governance or Corporate Value Added?: Rethinking the Primacy of Shareholder”. Value Journal of Applied Corporate Finance ( 4). Prat dit Hauret, C L'indépendance du commissaire aux comptes : une analyse empirique basée sur des composantes psychologiques du comportement Rabin, M new Perspective on Psychology and Economics”. [...]

[...] The conflicting perspectives between economy and psychology can be explained through history and criticisms. Thorstein Veblen (1899) first remarked that economy was lacking cultural factors and social changes in its theories and axioms. Wesley C. Mitchell (1914: 47) defined economic sciences as a “system of pecuniary logic, a mechanical study of static equilibria under non-existent conditions”. Finally, Clark (1918:4) explained that economy was ignoring psychology and falsely situating individuals in emotionally isolated aggregates; in his opinion, it could not ignore anymore human nature and natural reactions. [...]