Thursday, April 20, 2006

Neuroeconomics


The economists are using a new technology that allows them to trace the activity of neurons inside the brain and thereby study how emotions influence our choices, including economic choices like gambles and investments.

For instance, when humans are in a "positive arousal state," they think about prospective benefits and enjoy the feeling of risk. All of us are familiar with the giddy excitement that accompanies a triumph. ...

But when people think about costs, they use different brain modules and become more anxious. They play it too safe, at least in the laboratory. Furthermore, people are especially afraid of ambiguous risks with unknown odds. ...

If one truth shines through, it is that people are not consistent or fully rational decision makers.

From the inaugural Economic Scene column by Tyler Cowen of Marginal Revolution.

3 Comments:

  1. Hawkeye said...

    And there is this most amazing article I read about the presence of testosterone in men. Seems men who have been sexually excited, or in the presence of a beautiful woman, make riskier decisions or non-rational decisions than men who havent. And this is specific to men. Women do not seem to be affected by similar problems.

  2. Charu said...

    oh, I think decision making is hardly ever rational... most of us just like to delude ourselves about it. look at all the ads around us!
    but I find the idea of neuro-anything quite scary - being able to peep isnide our minds to see what is happening there - and all to be able to manipulate our thought (and emotion?) in a more efficiant manner? ouch.
    I had written about neuromarketing a long time ago... do read it sometime.

  3. Abi said...

    Hawkeye: Thanks for that alert. I too noticed that report. Men really have to watch out: it's so easy to distract and fool them!

    Charu: While irrational thinking is nothing new, economists are coming to grips with how to deal with it. Hence the excitement. But you are right: it is time to worry when the advertisers are using such techniques to push us into more irrational thinking! Thanks for that link to your post.