Tuesday, January 8, 2013

The Neurological Approach to Economics: The measuring cup of the brain!

Inside the crevasses and cracks of your brain are the components to economic activity. Research has helped scientists understand that certain activation centers within the brain lead to economic activities associated with purchasing, ethical behavior, theft, choices, violating social norms and much more (Ruff , Ugazio, and Fehr, 2011). A new science entitled neuroeconomics moves to a deep micro analysis that may help to explain the macro-economic system in greater detail.

Simply looking at the large economic system as a cold running machine gives one a static vision which does not offer an adequate discussion on the depth of human thought that makes up the final decision. The other half of commerce may be in the human brain and how we perceive our stake in the larger economic context. Through the internal workings of the mind we can begin to see how different choices are made based upon cellular activation.

The field of neuroeconomics is new and is not yet widely studied at many universities. Available information is scarce. This science tries to explain why humans make certain economic decisions by going deep within the brain to study neural-activity.  Through this depth and understanding it may someday be possible to see precisely why some people are hardwired to make some decisions over others based upon their paths of neural-connections.

Neuroeconomics takes into consideration the fields of neuroscience, economics, psychology, and computer science to understand how humans engage in decision-making about value laden options. The three fundamental questions asked by Neuroeconomics are as follows (Wilson, 1999):

1.) What are the factors computed by the brain and how does this convert to behavior?

2.) How does the neurobiology implement and confine these decisions?

3.) What are the implications for understanding behavior in economic contexts?

The questions attempts to take a look at how the brain functions and controls behaviors when it comes to economic purchases. For example, a person makes the decision to purchase a $600 television or a save their money for some future purchase. Within the brain there will be a number of processes and factors being weighed before the actual decision to purchase, or not purchase, is made.

Often the choices people make can be studied with an EEG or MRI scan to view what is going on inside their head. When a subject makes a decision between two products the brain will send signals to connect information that ultimately impacts the final choice. The ventromedial prefrontal cortex appears to hold the economic choices and values that subjects use to make a final decision (Wunderlich, Rangel, and O’Doherty, 2010).

In unbounded economic theories individuals are seen as making rational choices in their behaviors which encourages the economic system to move into homeostasis through the total impact of their actions. Therefore, understanding how people make these choices on a neurological level allows scientists to break down human behavior into smaller components of understanding and analyze them. Knowing why some products sell on a neurological level will help us understand why these same products sell on a macro-economic level. It is through these many small choices that a larger system is built.

Kable, J. and Glimcher, P. (2007).The Neural Correlates of Subjective Value during Intertemporal Choice. Nature Neuroscience, 10 (12): 1625–33.

Ruff, C., Guiseppe, U. and Fehr, E. (2011). Transcranial Direct Current Stimulation of Dorsolateral Prefrontal Cortex Changes Social Norm Compliance. University of Zurich, Department of Economics.

Wilson, E. (1999). Consilience: The Unity of Knowledge. New York, New York: Vintage.

Wunderlich, K., Rangel, A. & O'Doherty, J. (2010). Economic Choices Can Be Made Using Only Stimulus Values. PNAS, 107 (34): 15005–10.

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