The cognitive and motivational processes that influenced your impulse purchase of a double-chocolate muffin at the coffee shop this morning may not be as straightforward as once thought. Traditional economic theory would say that the purchase was made because of the “utility” of the muffin, meaning that, at that moment you made the decision, it was based on a set of judgments derived from the way you allocate your resources across a range of goods and services in order to gain satisfaction.
One of the limitations of economics is that it is abstract. Its principles are a series of hypotheses that stress efficiency and idealised versions of human behaviour: it emphasises what people ought to do in order to achieve optimal outcomes. Economics is rooted in the ideal, not the human. The problem is that people don’t always do what’s most efficient. Psychological observation has offered us insights into what people actually do. But psychology and economics don’t paint the whole picture: economic theory works well when describing large groups, and poorly when analysing individuals. Psychology can give valuable insights into individual behaviour, acting as a good descriptive tool, but it lacks coherence when it comes to theory.
Psychologists might point out that they were conducting tests long before economists, but neither discipline possesses pure science. The theory of utility might explain why you buy a muffin, but it stumbles when explaining why you gambled your inheritance or volunteered at a homeless shelter. Choice behaviour based on cost-benefit analysis leaves little room for ambiguity.
However, new ways of examining economic behaviour are being forged by a growing number of interdisciplinary research teams from the fields of neurobiology, experimental psychology, mathematics and social science. They are developing an approach based on biologically plausible models, using tools such as neural imaging, and analyses of how chemicals in the brain or neurons operate, rather than grand theory.
Using data gleaned from controlled economic experiments, departments of neuroeconomics — many barely five years old — are attempting to fill the gaps in our knowledge between what people should do, and what they actually do. The aim: to create an algorithmic model of human behaviour through a synthesis that blurs the border between the social and natural sciences.
The Center for Economics and Neuroscience in Bonn uses neuroimaging to investigate the neural basis for social and economic decision-making. It claims to be the first lab in Europe to scan the brains of two people taking part in an experiment simultaneously. Each subject was given a series of problems to solve and was rewarded with money for correct answers. However, one was given more money than the other. The subjects’ brainwaves were recorded as they solved the problems and as they received their unequal rewards.
Scientists analysed data from the ventral striatum, the part of the brain most activated when a subject receives rewards. They found that the strength of the activation doesn’t just depend on what an individual receives — it’s made stronger or weaker depending on what others receive. The activation in the subject of the test who received a reward, but was aware that the other subject was getting more, was weaker. This suggests that, for the subject who was receiving less, comparison with what the other subject gained was more important than the sum received. The other insight: the more active the reward centre in the brain, the less rational thinking seems to play a role, which helps to explain fluctuations in financial markets and — perhaps — why you decided to buy a chocolate muffin as well as a raspberry one.
First published in the May issue of WIRED.