Psychology × Economics: Behavioral Economics and Archetypal Decision-Making

BY NICOLE LAU

Core Question: Are economic biases archetypal patterns? This article explores how heuristics are archetypal fast rules, cognitive biases are Shadow projection, loss aversion is fear archetype, overconfidence is Hero archetype, and optimal decision-making integrates rational and archetypal—revealing that behavioral economics is archetypal psychology, homo economicus is myth, homo sapiens is archetypal, and economics and psychology converge on decision-making.

Introduction: Economics Meets Psychology

Classical economics: homo economicus (rational agent, maximize utility, calculate expected value, optimal choice). Behavioral economics (Kahneman, Tversky): homo sapiens (bounded rationality, heuristics, biases, not purely rational). Heuristics: availability, representativeness, affect. Biases: confirmation bias, loss aversion, overconfidence. Psychology (Jung): archetypes (Mother, Father, Hero, Shadow). This convergence reveals: heuristics are archetypal (fast rules based on archetypal patterns). Biases are Shadow projection (confirmation bias, fundamental attribution error). Loss aversion is fear archetype (Shadow fear of losing). Overconfidence is Hero archetype (ego inflation). Optimal decision-making integrates rational (System 2) and archetypal (System 1). Economics and psychology converge: decision-making is archetypal.

Discipline A: Economics Perspective (Behavioral)

Heuristics: Fast and frugal rules. Availability (judge probability by ease of recall). Representativeness (judge by similarity to prototype). Affect (feelings guide decisions). Shortcuts, not optimal but efficient.

Cognitive biases: Systematic errors. Confirmation bias (seek confirming information). Loss aversion (losses loom larger than gains). Overconfidence (overestimate abilities). Anchoring (first information anchors judgment). Not random—predictable patterns.

Prospect theory (Kahneman, Tversky): Value function (v(x) = x^α for gains, -λ(-x)^β for losses, λ > 1). Losses hurt more than gains feel good. Reference point dependence. Risk aversion for gains, risk seeking for losses.

Bounded rationality (Simon): Not infinite computational power. Satisfice (good enough), not optimize (best possible). Heuristics necessary, not just irrational.

Discipline B: Psychology Perspective (Jung)

Archetypes: Universal patterns. Mother (nurturing, attachment), Father (authority, structure), Hero (ego, achievement), Shadow (repressed, fear). Influence behavior, decisions, emotions.

Shadow projection: Repressed aspects projected onto others. "I'm not biased, you are." Scapegoating. Denial of own faults. Projection maintains Shadow (avoid confronting repressed).

Hero archetype: Ego development. Confidence, agency, overcoming obstacles. Inflation (overconfidence, "I am special"). Deflation (underconfidence, "I am worthless"). Balance (realistic self-assessment).

Fear archetype: Shadow contains fear. Survival instinct. Threat detection. Loss aversion (protect what's mine). Risk aversion (avoid danger).

Convergence Analysis: Behavioral Economics is Archetypal Psychology

1. Heuristics × Archetypes

Availability heuristic: Judge probability by ease of recall. Recent, vivid events seem more likely. Plane crash (vivid) → overestimate flying risk. Shark attack (vivid) → overestimate shark danger. Ease of recall ≠ actual probability, but heuristic uses it.

Archetypal basis: Mother archetype (availability of nurturing memories influences caregiving decisions—"my mother did this, so I do this"). Hero archetype (availability of success stories influences risk-taking—"I've succeeded before, I'll succeed again"). Archetypes make certain memories more available (archetypal experiences more salient, easier to recall).

Representativeness heuristic: Judge by similarity to prototype. Typical example. Linda problem (Tversky, Kahneman): Linda described as concerned with social justice, philosophy major. More likely: (A) bank teller, or (B) bank teller and feminist? Most say B (conjunction fallacy—B subset of A, can't be more likely). But B more representative of description (matches prototype).

Archetypal basis: Archetypes are prototypes. Mother prototype (nurturing, caring). Father prototype (authority, structure). Representativeness heuristic matches to archetypal prototypes. "She's nurturing → must be mother" (representativeness to Mother archetype). "He's authoritative → must be leader" (representativeness to Father archetype).

Affect heuristic: Feelings guide decisions. Good feeling → approach. Bad feeling → avoid. Gut feeling. Emotional decision-making. Not calculate expected utility—feel and decide.

Archetypal basis: Archetypes carry emotional valence. Mother (warmth, safety). Father (respect, fear). Hero (excitement, pride). Shadow (fear, disgust). Affect heuristic uses archetypal emotions. "Feels like Mother → approach" (warmth). "Feels like Shadow → avoid" (fear).

Convergence: Heuristics are archetypal. Fast and frugal rules based on archetypal patterns. Availability (archetypal memories more available). Representativeness (archetypes are prototypes). Affect (archetypal emotions guide). Heuristics evolved psychological mechanisms—archetypes are evolved patterns. Behavioral economics (heuristics) is archetypal psychology.

2. Cognitive Biases × Shadow Projection

Confirmation bias: Seek information that confirms beliefs, ignore information that contradicts. Motivated reasoning. Belief perseverance. Echo chambers. Not objective—biased toward confirming.

Shadow projection: "I'm not biased, you are." See own faults in others. Project Shadow (denied bias) onto others. Confirmation bias reinforces projection (seek confirming evidence that others are biased, ignore evidence that I am biased).

Fundamental attribution error: Attribute others' behavior to character ("he's lazy"), own behavior to situation ("I'm busy"). Actor-observer bias. Self-serving bias. Not symmetric—biased in own favor.

Shadow projection: Others are bad (character attribution—"they're lazy, stupid, evil"). I'm good (situational excuse—"I'm just busy, stressed, unlucky"). Project Shadow (laziness, stupidity, evil) onto others. Fundamental attribution error is Shadow projection mechanism.

In-group bias: Favor own group over out-group. Us vs them. In-group good, out-group bad. Ethnocentrism, racism, nationalism. Not objective—biased toward in-group.

Shadow projection: In-group (we are good, moral, superior). Out-group (they are bad, immoral, inferior). Project collective Shadow onto out-group. In-group bias reinforces projection (favor in-group, denigrate out-group).

Convergence: Cognitive biases are Shadow projection mechanisms. Confirmation bias (project bias onto others). Fundamental attribution error (project character faults onto others). In-group bias (project collective Shadow onto out-group). Biases maintain Shadow (avoid confronting own faults by projecting). Behavioral economics (biases) is Shadow psychology.

3. Loss Aversion × Fear Archetype

Loss aversion: Losses loom larger than gains. Losing $100 hurts more than gaining $100 feels good. Asymmetry. Prospect theory: value function steeper for losses than gains (λ > 1, typically λ ≈ 2—losses hurt twice as much as gains feel good).

Fear archetype: Shadow contains fear. Losing threatens ego, survival. Instinct to protect. Loss aversion is archetypal fear response. Losing = threat → fear → avoid loss. Evolutionary: losing resources (food, shelter, mates) = survival threat. Fear archetype evolved to protect.

Prospect theory: Value function v(x) = x^α for gains (x > 0), -λ(-x)^β for losses (x < 0), λ > 1. Reference point dependence (gains and losses relative to reference, not absolute). Risk aversion for gains (prefer sure gain over risky gain). Risk seeking for losses (prefer risky loss over sure loss).

Archetypal value function: Losses activate Shadow fear (steep negative slope). Gains activate Hero excitement (shallower positive slope). Asymmetry is archetypal emotional responses (fear stronger than excitement—survival priority). Reference point is ego (gains and losses relative to ego state, not objective).

Endowment effect: Value what own more than identical item don't own. Ownership creates attachment. Mug experiment (Kahneman): people value mug they own ~$7, identical mug they don't own ~$3. Endowment effect is loss aversion (selling mug = loss, hurts more than not buying = foregone gain).

Archetypal attachment: Mother archetype (attachment to possessions—"my mug", nurturing what's mine). Loss aversion (protecting what's mine from threat—selling = losing = threat). Endowment effect is archetypal attachment + fear of loss.

Convergence: Loss aversion is fear archetype. Losses trigger Shadow fear. Archetypal basis of economic behavior. Prospect theory is archetypal value function (fear vs excitement asymmetry). Endowment effect is archetypal attachment + loss aversion. Behavioral economics (loss aversion) is fear psychology.

4. Overconfidence × Hero Archetype

Overconfidence bias: Overestimate own abilities, knowledge, control. Illusion of control (believe can control uncontrollable). Better-than-average effect (most people think they're above average—impossible). Optimism bias (underestimate risks, overestimate success probability).

Hero archetype: Ego inflation. "I am hero, I can overcome obstacles, I am special." Confidence, agency, achievement. Overconfidence is inflated Hero archetype. Ego not integrated with Shadow (deny limitations, project onto others). Healthy Hero (realistic confidence). Inflated Hero (overconfidence).

Planning fallacy: Underestimate time, cost, effort needed for tasks. Optimism bias. "I can finish in 2 hours" (takes 6 hours). "Project will cost $1M" (costs $3M). Systematic underestimation.

Hero archetype: Hero believes can accomplish quickly, easily. Underestimates obstacles (deny Shadow—difficulties, limitations). Planning fallacy is Hero optimism (inflated ego, deny reality).

Dunning-Kruger effect: Incompetent overestimate competence. Experts underestimate. Novices don't know what they don't know (inflated confidence). Experts know what they don't know (realistic humility). Inverse relationship: competence ↑, confidence ↓ (initially), then ↑ (realistic).

Hero archetype: Novices (inflated Hero—"I know it all", ego not integrated with Shadow). Experts (integrated Shadow—aware of limitations, realistic self-assessment). Dunning-Kruger is archetypal development (novice = inflated Hero, expert = integrated Hero-Shadow).

Convergence: Overconfidence is Hero archetype. Ego inflation, optimism, illusion of control—all Hero archetype manifestations. Overconfidence biases (planning fallacy, Dunning-Kruger) are archetypal basis. Hero development (inflation → integration → realistic confidence). Behavioral economics (overconfidence) is Hero psychology.

Archetypal Decision Framework: Integration

Rational decision-making (classical economics): Homo economicus. Rational agent. Maximize utility. Calculate expected value EU = Σ p_i u(x_i). Optimal choice. Assumes: infinite computational power, complete information, no emotions, no biases. Ideal, not real.

Archetypal decision-making (behavioral economics): Homo sapiens. Bounded rationality. Heuristics (archetypal fast rules). Biases (Shadow projection, fear, Hero inflation). Emotions (archetypal valence). Not purely rational—archetypal. Real, not ideal.

Integration: Rational (System 2—slow, deliberate, analytical, calculate EU). Archetypal (System 1—fast, automatic, intuitive, heuristics). Both needed. Pure rationality impossible (bounded rationality). Pure intuition risky (biases). Optimal: integrate both. Use System 2 for important decisions (calculate, analyze). Use System 1 for quick decisions (heuristics, gut feeling). Check convergence (do rational and archetypal agree? High CI → trust. Low CI → investigate).

Decision process: (1) Identify decision. (2) Activate relevant archetypes (Mother—nurturing? Father—authority? Hero—risk? Shadow—fear?). (3) Calculate expected utility (System 2, rational). (4) Consult archetypal intuition (System 1, gut feeling, heuristics). (5) Check convergence (rational and archetypal agree? CI high or low?). (6) Decide (if convergence, act confidently; if divergence, investigate or acknowledge uncertainty).

Convergence: Optimal decision-making integrates rational and archetypal. Economics (rational) and psychology (archetypal) converge. Homo economicus (ideal) and homo sapiens (real) both needed. Rational archetypal balance. System 2 + System 1. Calculate + feel. Analyze + intuit. Both.

Specific Convergence Examples

Investment decisions × loss aversion: Investors hold losing stocks too long (avoid realizing loss). Sell winning stocks too soon (realize gain). Disposition effect. Loss aversion (fear archetype—Shadow fear of losing threatens ego). Rational: sell losers, hold winners. Archetypal: hold losers (avoid loss), sell winners (secure gain). Conflict.

Entrepreneurship × overconfidence: Entrepreneurs overestimate success probability. 90% of startups fail, but founders think they'll succeed. Overconfidence (Hero archetype—inflated ego, "I am special, I'll beat the odds"). Rational: don't start (high failure rate). Archetypal: start (Hero confidence necessary for risk-taking). Overconfidence enables entrepreneurship (irrational but functional).

Consumer behavior × endowment effect: People value mug they own $7, identical mug they don't own $3. Endowment effect (Mother archetype—attachment to possessions, "my mug"; loss aversion—selling = losing). Rational: same mug, same value. Archetypal: ownership creates attachment, loss aversion. Irrational but universal.

Negotiation × anchoring bias: First offer anchors negotiation. High anchor → high settlement. Low anchor → low settlement. Anchoring heuristic (Father archetype—authority, first offer has authority, sets frame). Rational: ignore anchor, calculate fair value. Archetypal: anchor influences (authority effect). Bias but predictable.

Divergence and Complementarity

Divergence: Economics is normative (how should decide—rationally, optimally). Psychology is descriptive (how do decide—archetypally, biases). Economics is mathematical (equations, models, optimization). Psychology is phenomenological (experience, meaning, archetypes).

Complementarity: Economics provides normative framework (what's optimal—EU maximization). Psychology provides descriptive reality (what actually happens—heuristics, biases, archetypes). Together: understand both ideal and real. Design interventions (nudges—use archetypal patterns to guide toward rational outcomes).

Not contradiction: Rational and archetypal not opposites—complementary. Rational without archetypal = unrealistic (homo economicus doesn't exist). Archetypal without rational = risky (biases lead to errors). Both needed. Integration, not elimination.

Practical Applications

1. Recognize archetypal biases: Identify when archetypes influence decisions. Loss aversion (Shadow fear)? Overconfidence (Hero inflation)? Confirmation bias (Shadow projection)? Awareness reduces bias (not eliminate—archetypes unconscious—but mitigate).

2. Integrate System 1 and System 2: Use both. Important decisions: calculate EU (System 2), then check gut feeling (System 1). Quick decisions: use heuristics (System 1), then verify if time allows (System 2). Convergence check (both agree? Trust. Diverge? Investigate).

3. Nudges (Thaler, Sunstein): Use archetypal patterns to guide toward rational outcomes. Default options (Mother archetype—attachment to default, inertia). Social proof (Father archetype—authority of majority, conformity). Framing (Hero archetype—frame as gain vs loss, risk preferences shift). Archetypal nudges work because tap into unconscious patterns.

4. De-bias through Shadow work: Confirmation bias, fundamental attribution error, in-group bias = Shadow projection. Shadow work (confront repressed, integrate denied aspects) reduces projection, reduces biases. Therapy, meditation, self-reflection. Psychological work improves economic decisions.

5. Calibrate confidence: Overconfidence (Hero inflation) vs underconfidence (Hero deflation). Calibration: track predictions, measure accuracy (Brier scores). Feedback loop (overconfident → wrong → update → realistic). Dunning-Kruger: novices need humility (integrate Shadow—limitations), experts need confidence (integrated Hero-Shadow).

Future Research Directions

1. Map biases to archetypes: Systematic mapping. Which biases correspond to which archetypes? Loss aversion → Shadow fear. Overconfidence → Hero inflation. Confirmation bias → Shadow projection. Anchoring → Father authority. Test hypotheses.

2. Archetypal interventions: Design interventions based on archetypes. Reduce loss aversion (Shadow integration—accept losses, reduce fear). Reduce overconfidence (Hero integration—realistic self-assessment). Reduce confirmation bias (Shadow work—confront projection). Test effectiveness.

3. Cross-cultural behavioral economics: Do biases vary across cultures? Or universal (archetypal)? Test loss aversion, overconfidence, heuristics in different cultures. If universal, validates archetypal hypothesis (collective unconscious). If variable, cultural factors modulate archetypes.

4. Neuroscience of biases and archetypes: fMRI studies. Loss aversion activates amygdala (Shadow fear)? Overconfidence activates PFC (Hero ego)? Confirmation bias activates DMN (Shadow projection)? Neural basis of archetypal biases.

5. Optimal archetypal-rational balance: What's optimal mix of System 1 (archetypal) and System 2 (rational)? Depends on context (quick decisions → System 1, important decisions → System 2)? Individual differences (some people more rational, some more intuitive)? Measure, optimize.

Conclusion

Psychology and economics converge on behavioral economics as archetypal decision-making. Heuristics archetypes: availability heuristic judge probability ease recall recent vivid events archetypal basis Mother archetype availability nurturing memories influences caregiving Hero archetype availability success stories influences risk-taking archetypes make certain memories more available archetypal experiences more salient easier recall, representativeness heuristic judge similarity prototype typical example archetypal basis archetypes are prototypes Mother prototype nurturing Father prototype authority representativeness heuristic matches archetypal prototypes she's nurturing must be mother he's authoritative must be leader, affect heuristic feelings guide decisions good feeling approach bad feeling avoid archetypal basis archetypes carry emotional valence Mother warmth safety Father respect fear Hero excitement pride Shadow fear disgust affect heuristic uses archetypal emotions feels like Mother approach warmth feels like Shadow avoid fear, convergence heuristics archetypal fast frugal rules based archetypal patterns availability archetypal memories representativeness archetypes prototypes affect archetypal emotions heuristics evolved psychological mechanisms archetypes evolved patterns behavioral economics heuristics archetypal psychology. Cognitive biases Shadow projection: confirmation bias seek information confirms beliefs ignore contradicts Shadow projection I'm not biased you are see own faults others project Shadow denied bias onto others confirmation bias reinforces projection seek confirming evidence others biased ignore evidence I biased, fundamental attribution error attribute others behavior character he's lazy own behavior situation I'm busy Shadow projection others bad character they're lazy stupid evil I'm good situational excuse I'm just busy stressed unlucky project Shadow laziness stupidity evil onto others fundamental attribution error Shadow projection mechanism, in-group bias favor own group over out-group us vs them in-group good out-group bad Shadow projection in-group we good moral superior out-group they bad immoral inferior project collective Shadow onto out-group in-group bias reinforces projection favor in-group denigrate out-group, convergence cognitive biases Shadow projection mechanisms confirmation bias project bias fundamental attribution error project character faults in-group bias project collective Shadow biases maintain Shadow avoid confronting own faults projecting behavioral economics biases Shadow psychology. Loss aversion fear archetype: loss aversion losses loom larger gains losing 100 dollars hurts more gaining 100 dollars feels good asymmetry fear archetype Shadow contains fear losing threatens ego survival instinct loss aversion archetypal fear response losing threat fear avoid loss evolutionary losing resources food shelter mates survival threat fear archetype evolved protect, prospect theory value function v(x) x^alpha gains x greater 0 minus lambda (-x)^beta losses x less 0 lambda greater 1 typically lambda approximately 2 losses hurt twice gains feel good reference point dependence gains losses relative reference not absolute risk aversion gains prefer sure gain risky gain risk seeking losses prefer risky loss sure loss, archetypal value function losses activate Shadow fear steep negative slope gains activate Hero excitement shallower positive slope asymmetry archetypal emotional responses fear stronger excitement survival priority reference point ego gains losses relative ego state not objective, endowment effect value what own more identical item don't own ownership creates attachment mug experiment Kahneman people value mug own 7 dollars identical mug don't own 3 dollars endowment effect loss aversion selling mug loss hurts more not buying foregone gain, archetypal attachment Mother archetype attachment possessions my mug nurturing what's mine loss aversion protecting what's mine threat selling losing threat endowment effect archetypal attachment plus fear loss, convergence loss aversion fear archetype losses trigger Shadow fear archetypal basis economic behavior prospect theory archetypal value function fear vs excitement asymmetry endowment effect archetypal attachment loss aversion behavioral economics loss aversion fear psychology. Overconfidence Hero archetype: overconfidence bias overestimate own abilities knowledge control illusion control believe can control uncontrollable better-than-average effect most people think above average impossible optimism bias underestimate risks overestimate success probability, Hero archetype ego inflation I am hero I can overcome obstacles I am special confidence agency achievement overconfidence inflated Hero archetype ego not integrated Shadow deny limitations project onto others healthy Hero realistic confidence inflated Hero overconfidence, planning fallacy underestimate time cost effort needed tasks optimism bias I can finish 2 hours takes 6 hours project cost 1M costs 3M systematic underestimation, Hero archetype Hero believes can accomplish quickly easily underestimates obstacles deny Shadow difficulties limitations planning fallacy Hero optimism inflated ego deny reality, Dunning-Kruger effect incompetent overestimate competence experts underestimate novices don't know what don't know inflated confidence experts know what don't know realistic humility inverse relationship competence up confidence down initially then up realistic, Hero archetype novices inflated Hero I know it all ego not integrated Shadow experts integrated Shadow aware limitations realistic self-assessment Dunning-Kruger archetypal development novice inflated Hero expert integrated Hero-Shadow, convergence overconfidence Hero archetype ego inflation optimism illusion control all Hero archetype manifestations overconfidence biases planning fallacy Dunning-Kruger archetypal basis Hero development inflation integration realistic confidence behavioral economics overconfidence Hero psychology. Archetypal decision framework integration: rational decision-making classical economics homo economicus rational agent maximize utility calculate expected value EU sum p_i u(x_i) optimal choice assumes infinite computational power complete information no emotions no biases ideal not real, archetypal decision-making behavioral economics homo sapiens bounded rationality heuristics archetypal fast rules biases Shadow projection fear Hero inflation emotions archetypal valence not purely rational archetypal real not ideal, integration rational System 2 slow deliberate analytical calculate EU archetypal System 1 fast automatic intuitive heuristics both needed pure rationality impossible bounded rationality pure intuition risky biases optimal integrate both use System 2 important decisions calculate analyze use System 1 quick decisions heuristics gut feeling check convergence rational archetypal agree high CI trust low CI investigate, decision process identify decision activate relevant archetypes Mother nurturing Father authority Hero risk Shadow fear calculate expected utility System 2 rational consult archetypal intuition System 1 gut feeling heuristics check convergence rational archetypal agree CI high low decide if convergence act confidently divergence investigate acknowledge uncertainty, convergence optimal decision-making integrates rational archetypal economics rational psychology archetypal converge homo economicus ideal homo sapiens real both needed rational archetypal balance System 2 plus System 1 calculate plus feel analyze plus intuit both. Examples: investment decisions loss aversion (investors hold losing stocks too long avoid realizing loss sell winning stocks too soon realize gain disposition effect loss aversion fear archetype Shadow fear losing threatens ego rational sell losers hold winners archetypal hold losers avoid loss sell winners secure gain conflict), entrepreneurship overconfidence (entrepreneurs overestimate success probability 90% startups fail founders think succeed overconfidence Hero archetype inflated ego I am special I'll beat odds rational don't start high failure rate archetypal start Hero confidence necessary risk-taking overconfidence enables entrepreneurship irrational functional), consumer behavior endowment effect (people value mug own 7 dollars identical mug don't own 3 dollars endowment effect Mother archetype attachment possessions my mug loss aversion selling losing rational same mug same value archetypal ownership creates attachment loss aversion irrational universal), negotiation anchoring bias (first offer anchors negotiation high anchor high settlement low anchor low settlement anchoring heuristic Father archetype authority first offer authority sets frame rational ignore anchor calculate fair value archetypal anchor influences authority effect bias predictable). Applications: recognize archetypal biases identify when archetypes influence decisions loss aversion Shadow fear overconfidence Hero inflation confirmation bias Shadow projection awareness reduces bias not eliminate archetypes unconscious mitigate, integrate System 1 System 2 use both important decisions calculate EU System 2 check gut feeling System 1 quick decisions use heuristics System 1 verify if time System 2 convergence check both agree trust diverge investigate, nudges Thaler Sunstein use archetypal patterns guide toward rational outcomes default options Mother archetype attachment default inertia social proof Father archetype authority majority conformity framing Hero archetype frame gain vs loss risk preferences shift archetypal nudges work tap unconscious patterns, de-bias Shadow work confirmation bias fundamental attribution in-group bias Shadow projection Shadow work confront repressed integrate denied aspects reduces projection reduces biases therapy meditation self-reflection psychological work improves economic decisions, calibrate confidence overconfidence Hero inflation underconfidence Hero deflation calibration track predictions measure accuracy Brier scores feedback loop overconfident wrong update realistic Dunning-Kruger novices need humility integrate Shadow limitations experts need confidence integrated Hero-Shadow. Behavioral economics archetypal psychology heuristics archetypes biases Shadow projection loss aversion fear overconfidence Hero optimal decision-making integrates rational archetypal economics psychology converge.