Neuroeconomics

Overview

Neuroeconomics combines neuroscience, economics, and psychology to study how people make decisions. It looks at the role of the brain when we evaluate decisions, categorize risks and rewards, and interact with each other.

Neuroeconomics & neuroscience

Neuroscience studies the nervous system, with broad areas such as the senses, movement, and internal regulation. Neuroeconomics is the subset that focuses on high-level concepts of personal choices and decisions, and how these are represented using our neurons and neuronal networks.

Neuroeconomics & economics

Economics studies choices and decisions, with broad areas such as macroeconomics for large groups and microeconomics for individuals. Neuroeconomics is the subset that focuses on personal choices and the mental changes that correlate with the choices and may even cause them. A key insight is that the biological substance of a living organism can be modeled as implementing an optimizing solution to some survival/reproductive challenge in the evolutionary environment.

Neuroeconomics & business research

Neuroeconomics also incorporates aspects of business research (e.g., consumer neuroscience, neurofinance, organizational decision making).

Neuroeconomics & psychology

Psychology studies thought and perception, with broad areas such as language, cognition, memory, group psychology and abnormal psychology. Neuroeconomics is the subset that focuses on thought about our choices, especially the cognition that happens when we understand our options and then choose one.

Neuroeconomics findings tend to confirm that emotions (among them hope and fear) are important factors in many economic choices.

Experiments

In a typical behavioral economics experiment, a subject is asked to make a series of economic decisions. For example, a subject may be asked whether they prefer to have 45 cents or a gamble with a 50% chance of one dollar and 50% chance of nothing. The experimenter will then measure different variables in order to determine what is going on in the subject's brain as they make the decision. The simplest experiments record the subject's decision over various different design parameters (what about 42 cents?), and use the data to generate formal models that predict performance. This is the type of experiment for which Daniel Kahneman won the Nobel Prize in Economics.

Neuroeconomics extends the approach of behavioral economics by adding observation of the nervous system to the set of explanatory variables.

In neuroeconomic experiments, full brain scans will be performed using fMRI or PET in order to compare the roles of the different brain areas that contribute to economic decision-making. Other experiments measure ERP (event-related potentials, which are closely related to EEG), and MEG (magnetoencephalograms) to measure the timecourses of different brain events that contribute to economic decision making.

The most complicated experiments involve direct recordings of neurons (and sometimes neurotransmitter concentrations) in monkeys and humans.

Criticisms

A prominent critic of Neuroeconomics is Ariel Rubinstein. In the world congress of the Econometric Society in 2005 he referred to Neuroeconomics as "a field that oversells itself" (see Rubinstein (2006)).

Gul and Pesendorfer (2005) have argued that the methodology of neuroeconomics answers irrelevant questions, in that it concentrates on what provides the most hedonic satisfaction to experimental subjects rather than what economic outcome those subjects choose out of multiple options. However, neuroeconomic research has been able to provide more insight into some behavior that could not be adequately explained by other methods. [1]

Ramifications

Neuroeconomics, although a relatively recent approach to biology and human behavior, shows promise of contributing to knowledge in a wide range of areas. Neuroeconomic approaches have already been applied to issues as diverse as proving guilt beyond a reasonable doubt (no reference) and analyzing communications services demand [2].

Some consider that neuroeconomics could be a new source of manipulative tools for advertisers to influence buying decisions, and that consumers should be taught to identify them.

References

Deppe M; Schwindt W; Pieper A; Kugel H; Plassmann H; Kenning P; Deppe K; Ringelstein EB; "Anterior cingulate reflects susceptibility to framing during attractiveness evaluation." Neuroreport; July 2007; 18 (11) : 1119-23.
Deppe M; Schwindt W; Kugel H; Plassmann H; Kenning P: "Nonlinear responses within the medial prefrontal cortex reveal when specific implicit information influences economic decision making." J Neuroimaging; April 2005; 15(2):171-82.
Deppe M; Schwindt W; Krämer J; Kugel H; Plassmann H; Kenning P; Ringelstein EB; "Evidence for a neural correlate of a framing effect: bias-specific activity in the ventromedial prefrontal cortex during credibility judgments." Brain Res Bull; November 2005; 67(5):413-21.
Peter Kenning, Hilke Plassmann, "Brain Research Bulletin - Special Issue on NeuroEconomics", 2005
Peter Kenning, Hilke Plassmann, "NeuroEconomics: An overview from an economic perspective", 2005
Paul Glimcher, Decisions, Uncertainty, and the Brain: The Science of Neuroeconomics, MIT Press, 2003.
Colin Camerer, George Loewenstein, Drazen Prelec, "Neuroeconomics: How neuroscience can inform economics", Journal of Economic Literature, 2005
Paul J. Zak, Robert Kurzban and William T. Matzner, "The Neurobiology of Trust", ANN. N.Y. ACAD. SCI., 1032:224–227 (2004).
Michael Kosfeld, Markus Heinrichs, Paul J. Zak, Urs Fischbacher, & Ernst Fehr. Oxytocin Increases Trust In Humans, Nature, 435:473–476, 2005 June 2nd.
Paul J. Zak, Robert Kurzban, and William T. Matzner. "Oxytocin is Associated with Human Trustworthiness", Hormones and Behavior, 48, 522 –527, 2005.
John Cassidy, "Mind Games. What neuroeconomics tells us about money and the brain", New Yorker, 2006 September.
Faruk Gul, Wolfgang Pesendorfer, "The Case for Mindless Economics", 2005
Ariel Rubinstein Comments on Behavioral Economics, in Advances in Economic Theory (2005 World Congress of the Econometric Society), Edited by R. Blundell, W.K. Newey and T. Persson, Cambridge University Press, 2006, vol II, 246-254.
Hardy-Vallée, B. (forthcoming). "Decision-making: a neuroeconomic perspective". Philosophy Compass.
Zak, Paul J., Stanton, Angela A., Ahmadi, Sheila, "Oxytocin Increases Generosity in Humans", PloS One, 2(11); e1128, November 7, 2007
Sanfey, Alan G. "Social Decision-Making: Insights from Game Theory and Neuroscience" Science Magazine. October 2007. American Association for the Advancement of Science.

External links

Centers & Organizations

Conferences & Publications

Popular Media

"What is Neuroeconomics?" - broadcast by WGBH and PBS, in the program series "Curious", January 2008.

Blogs

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