Tuesday, July 04, 2006

'Economy of the Mind'

Economy of the Mind
Kendall Powell
PLoS Biology v.1 Dec, 2003

Some interesting passages:

McCabe's experiment hints that humans are wired to cooperate. “We're biologically endowed to engage in personal exchange,” he says. “And what makes economies run so well is not personal exchange per se, but our ability to trade with people we don't even know—to buy food at the grocery store from a farmer we've never met.”

Another group, led by Read Montague, director of the Human Neuroimaging Laboratory at Baylor College of Medicine in Houston, Texas, has also looked at brains of cooperators in the Trust Game. Here, an investor decides to trust a trustee with some of her money. The investment is increased by the experimenter and then the trustee decides how much to give back to the investor. This game is played out ten times by two people who meet each other at the beginning and whose brains are scanned simultaneously as they play.

The researchers wanted to see what happens in each player's brain when the trustee's decision is revealed to both on a computer screen. “The trustee's brain shows the visual cortical activity only of seeing the screen,” Montague explains. “But the investor's brain goes haywire, with both emotional and cognitive reactions to what they see.” Presumably, the activity represents the investor trying to assimilate the information into her decision of how much to invest in the next round.

Montague, a physicist by training, says he's found a home in the computational nature of neuroeconomics, which adds a “fresh look at a bunch of problems that were previously only at the margins of behavioral psychology.” But he also sees the advantages that the field brings to economists by shoring up their models with physical evidence: “Let's face it, they don't have good models now or they could tell you what's going to happen [in the stock market] tomorrow. This is starting to give economists a way to loop back into experiments—they realized they've got to crack the head open.”

Montague's collaborator Camerer agrees that knowing how individual humans make decisions could certainly improve our understanding of larger markets. After all, global trade institutions are still run by individuals who draw on their own ability to trade and make decisions. Unraveling the decision-making code would open windows on economic questions ranging from the global (Why do certain countries enjoy economic growth?) to the very personal (What causes compulsive behavior when reward systems go bad?).

Camerer sees neuroeconomics as trying to “make a one-to-one mapping from economic theory to the brain. We have a head start, but it's very difficult to produce clear neuroscience that also has economic significance.” In just a few decades, he envisions that economic theory may look very different, perhaps throwing out utility altogether and instead having a system of mechanisms found in the brain that interact to help a shopper decide, “What's for dinner?”

And the knowledge coming out of the fledgling field—how the brain codes motivation and reward value—could be used to increase work output, promote more effective addictive drug rehab programs, and stabilize economies. Camerer adds, “This work can really go from synapses seen in brain imaging to explaining the most important thing in the world—why is Africa poor and Singapore rich?”

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