‘But boss, my orbitofrontal cortex made me do it.’
You may want to try that excuse next time you’re in trouble with a bad trade.
That’s one possible implication from a primer on neuroeconomics published Thursday by the Royal Society, a club for eminent scientists, as part of its Brain Waves project.
The short paper reviews early insights from the fledgling field, which seeks to understand the neurobiological basis of economic decision-making. Behavioural economics with brains, literally.
If you think this is all ‘a big, fat hoax‘, look away now. But if you’re interested in this sorta thing, it’s a good place to start.
Neuroeconomics is concerned with the parts of the brain that process gain and loss — and how activity in these areas can explain the decision-making in transactions between people (and a few monkeys, too).
According to the paper, evidence of emotional activity from brain scans that leads to “irrational” behaviour could help explain results that deviate from economic choice theory. (We could then internalise the externality of emotions — but let’s not get ahead of ourselves.)
Here are some examples from the paper of why we might make “suboptimal” (i.e. bad) choices:
Reward neurons encode risk separately from value (see Schultz et al. 2008). Prefrontal risk signals differ between risk avoiders and risk takers. Risk reduces value signals in risk avoiders and increases value signals in risk takers. Thus, individual risk attitudes may reflect variations of prefrontal function.
We know that certain reward values are coded ‘inaccurately’ in the brain. For example, we know that the reward processes in the striatum tend to discount the values of future rewards (temporal value discounting). This may be a factor that leads us to invest less in provisions for the future (such as education, healthcare or pensions) than we ‘should’ do.
…events of low probability (such as an appalling murder or terrorism) can be overvalued in the brain (the rewarding nature of novelty), a factor that might contribute to resources being diverted from issues that affect the majority of the population.
And one for those keen to desnob the wine buffs:
a recent study on wine tasting shows that the same wine elicits a stronger reward value signal when its price information is inflated. These data suggest a neurobiological basis for the influence of external influences such as pricing on subjective valuation.
The paper also compares experimental results from theoretical predictions in games such as dictator, ultimatum, trust, and that old classic, the Prisoner’s dilemma. In each of these cases the results suggest that we get a buzz for altruism and fairness that changes the result expected by the model.
For example, in the two-player Ultimatum Game, one player divides up an amount of money and the other decides whether to accept the offer or reject, leaving both with nothing. Rejecting any “non-zero” offer is “irrational” but it happens a lot, apparently because our insular and prefrontal cortex are firing like mad at the unfairness of it all.
Interesting stuff, with potentially major implications for how we think about decision-making, empathy, kindness and free will.
Which is enough to get our striatum pumped.
Related link:
The killing joke – FT Alphaville
Brain Waves project – Royal Society
Social Animal – The New Yorker