eople are efficient, rational beings who
tirelessly act in their own self-interest. They make financial
decisions based on reason, not emotion. And naturally, most save
money for that proverbial rainy day.
Well, no. In making financial decisions, people are regularly
influenced by gut feelings and intuitions. They cooperate with total
strangers, gamble away the family paycheck and squander their
savings on investments touted by known liars.
Such human frailties may seem far too complicated and
unpredictable to fold into economic equations. But now many
neuroscientists are beginning to argue that it is time to create a
new field of study, called neuroeconomics.
These researchers are busy scanning the brains of people as they
make economic decisions, barter, compete, cooperate, defect, punish,
engage in auctions, gamble and calculate their next economic moves.
Based on their understanding of how fluctuations in neurons and
brain chemicals drive those behaviors, the neuroscientists are
expressing their findings in differential equations and other
mathematical language beloved by economists.
"This new approach, which I consider a revolution, should provide
a theory of how people decide in economic and strategic situations,"
said Dr. Aldo Rustichini, an economics professor at the University
of Minnesota. "So far, the decision process has been for economists
a black box."
Dr. Jonathan D. Cohen, a professor of cognitive neuroscience at
Princeton, agreed. "Most economists don't base their theories on
people's actual behavior," he said. "They study idealized versions
of human behavior, which they assume is optimal in achieving
To explore economic decision making, researchers are scanning the
brains of people as they engage in a variety of games designed by
experimental economists. The exercises are intended to make people
anticipate what others will do or what others will infer from the
person's own actions.
The games also reveal some fundamental facts about the brain that
economists are just beginning to learn and appreciate:
¶In making short-term predictions, neural systems tap into gut
feelings and emotions, comparing what we know from the past with
what is happening right now.
¶The brain needs a way to compare and evaluate objects, people,
events, memories, internal states and the perceived needs of others
so that it can make choices. It does so by assigning relative value
to everything that happens. But instead of dollars and cents, the
brain relies on the firing rates of a number of neurotransmitters —
the chemicals, like dopamine, that transmit nerve impulses. Novelty,
money, cocaine, a delicious meal and a beautiful face all activate
dopamine circuits to varying degrees; exactly how much dopamine an
individual generates in response to a particular reward is
calibrated by past experience and by one's own biological makeup.
¶Specific brain circuits monitor how people weigh different
sources of rewards or punishments and how they allocate their
attention. A region called the anterior cingulate reacts when people
make mistakes or perform poorly; some neuroscientists say it also
registers gains and losses, financial and otherwise. A small
structure called the insula detects sensations in the body. It is
also involved in assessing whether to trust someone offering to sell
us the Brooklyn Bridge.
These structures and neurotransmitter systems are activated
before a person is conscious of having made a decision, Dr. Cohen
In a study published the current issue of the journal Science,
Dr. Cohen and his colleagues, including Dr. Alan G. Sanfey of
Princeton, took images of people's brains as they played the
ultimatum game, a test of fairness between two people.
In the ultimatum game, the first player is given, say, $10 in
cash. He must then decide how much to give to a second player. It
could be $5, the fairest offer, or a lesser amount depending on what
he thinks he can get away with. If Player 2 accepts the offer, the
money is shared accordingly. But if he rejects it, both players go
away empty-handed. It is a one-shot game, and the players never meet