Psychological behavior and economics: the need for new theories and redefinition of basic concepts in Islamic economics

This study attempts to posit the nexus between psychology and economics. However it is not the purpose of the paper to focus on all aspects of psychology and its various theories. It is also not the purpose of this paper to trace the historical development of economics, its various schools and the economic ideas that emerged. It discusses only those areas that are relevant to the development of economic thought particularly with regard to motivation and psychological behaviour. It traces the historical experience of western economics and psychology through three phases, which inevitably led to secularism and the separation of both disciplines from morality. This study considers the emergence of the egoistic and selfish motives underlying assumptions as the cause of the predicament and confusion in the body of knowledge present in modern economics and psychology and other behavioral sciences. Due to the inextricable link between culture, motivation and psychological behaviour, this paper also attempts to synthesize psychology and economics within the framework of the Islamic system and how the Islamic model of man influences motivation and human actions. It is the contention of this paper that the Islamic synthesis between psychology and economics is significant as it suggests the need for reformulation of economic concepts, models and policies and theories which may differ from those of neoclassical economics. Therefore as a corollary, this paper also suggests that a holistic approach to man, development and development policies should be implemented to ensure effectiveness in the enhancement of man’s material and spiritual well being and his quality of life.