The Boom and the Bust: Can Theories from Social Psychology and Related Disciplines Account for One Country's Economic Crisis?
Article first published online: 12 FEB 2014
© 2014 The Society for the Psychological Study of Social Issues
Analyses of Social Issues and Public Policy
Volume 14, Issue 1, pages 281–310, December 2014
How to Cite
Thórisdóttir, H. and Karólínudóttir, K. E. (2014), The Boom and the Bust: Can Theories from Social Psychology and Related Disciplines Account for One Country's Economic Crisis?. Analyses of Social Issues and Public Policy, 14: 281–310. doi: 10.1111/asap.12051
- Issue published online: 27 DEC 2014
- Article first published online: 12 FEB 2014
The Icelandic economy collapsed dramatically in the fall of 2008, making the country one of the first victims of the sharp economic downturn that hit most of the West. The Icelandic crisis may serve as an especially illuminating case study of the psychology of economic booms and busts. We offer an analysis of the buildup and aftermath of the economic crisis in Iceland using theories and findings from social psychology and related disciplines. During the buildup, at the national level we focus on strong national identity, high levels of trust, and system justification. At the group level, we discuss homogeneity of bank employees, group identity, and organizational culture. At the individual level the focus is on motivated reasoning and cognitive heuristics. During the aftermath at the national level, the primary focus is on collective action and the ascent of women into power. At the individual level we discuss changes in values, and report on a study in which we examined people's perceptions of what caused the crisis and how it relates to political ideology. We conclude by considering several behaviors not accounted for in our analysis and some policy implications that can be gleaned from the analysis.