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Neuroeconomics: Biotech Meets Economics
grimiore1 writes "The Economist has a story today introducing the concept of Neuroeconomics, which uses brain scanning technology and neuroscience to create new economic models and theories."
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When we truly understand the mind, will we really need an economy? Cognitive science is a field I find myself interested in. As such, I've often pondered what society will do when we've unlocked the secrets of the mind. Now I know...
How can the greedy be phased out? How much does one man need?
"Economists have usually assumed that people's well-being, or "utility", depends on their level of consumption, but it might be that changes in consumption, especially unexpected downward ones, as in these experiments, can be especially unpleasant."
It seems then that education can subdue a feeling of loss after an economic tradgedy. Most people who lost their savings in Enron for instance, were not aware their retirement hinging on the profitability of one company, was not a secure portfolio.
Saskboy's blog is good. 9 out of 10 dentists agree.
Interestingly, the guys doing the 'cash your paycheck now' seem to have already tapped into this insight.
Even people who need the cash now would often be better off just telling their landlord they'd be late - yet these check-cashing places (that do almost exactly that $100 now vs $115 in a week) do well.
Wonder how they figured this out without brain scanning? :)
I don't really think so. All that they really are doing is showing that our thought processes are largely governed by our desire to survive. By increasing the amount of money, the researchers pretty much told the subjects minds that they are being more successful in their environment -- just a positive feedback system increasing survival chances of the subject. I dunno, this research doesn't really prove anything.
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Considering that the whole concept of economics was created in human minds, using the human mind to better understand it seems quite logical.
'Every story, if continued long enough, ends in death.' --Ernest Hemingway
Applaud the next vague money landgrab...
Interesting read. Let's say the neuroeconomists find some new microeconomic stuff that deviates from the standard assumption of rationality. Wouldn't people respond to that by using this information about systematic non-rationality to transfer wealth from "non-rational" to rationals? I.e. the object observed (human interaction) will be affected by the results of the observer (the research), which will render the conclusions of the result questionable. Just some random thoughts -- guess it applies to all social sciences, and economics in particular :-)
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This work is valuable. The tradition of individual choice in economics has been pretty much based on two approaches until recently. The first approach has largely been one of a bunch of people saying to each other "this seems reasonable doesn't it?" and when enough of them answer "yep", it goes into the theory. The second approach is an attempt to be hardcore scientific and positivist, which basically meant you couldn't put anything in the theory which smacked of knowing how a person felt about anything.
Those two approaches balanced each other out OK, but it obviously leaves things incomplete. Experimental economics in general and neuroeconomics in particular takes things out of that purely thinking-about-it realm and starts to make it empirical. That's mighty cool.
On the other hand, the article was terribly lax in what it considered economics. "Economics" can cover a lot of ground, but reducing it to psychology or cognitive science is counterproductive. Economics is properly about interactions between people, often very large groups of people. Identifying what happens in someone's brain when they think about expected values--or even when they're playing a game with someone else--only tells you about the individual, not the system.
An important part of economics is in describing the individuals, who are usually treated as the "atoms" of an economic system. But economics is more importantly about what happens when you throw a lot of them together, which will still require a lot that you can't get from brainscans.
Working out how people behave may possibly help, but since the occasional major scam or mental illness of the leading stockbroker in the country (happened in Australia) has major effects, you can't trust complex models very closely.
Economies surge and fall on hype, lies and what look like incredibly stupid decisions in hindsight. Surely the USA knew that bankrupting Europe in the 1920s by calling in the loans at once would hurt them as well? Who was going to buy their goods if no-one had any money?
Ever wonder why you see bears and tigers so often in commercials? Or certain colors? Or themes? ("I am different") That's because the powers-that-be have determined through exhaustive surveys that these are the things that push people's buttons the best.
Now I guess they're going high tech and studying the brain directly with MRI machines and stuff.
I have a suggestion for the big boys: Make a good product and sell it at a reasonable price.
Well...it depends. That statement assumes that a person has preferences described by a risk-neutral utility function (for example, a linear function). In that case the utility a $1000 gain would fully compensate for the decline of utility from a $1000 loss.
However, people can also be risk-averse (in which case the loss in utility from being out $1000 would be greater than the gain from receiving $1000) or risk-loving (in which case the opposite situation happens). Further, they can be any of those within particular intervals. It's generally accepted that not all agents are risk-neutral (though it does make some models easier to build).
...how could economists create a truly accurate model of people's feelings towards, for example, changes in the USA's federal reserve interest rates, without having to take costly (and time-consuming) scans of large portions of the population? All people are different in their reactions to economic change, and I think that it would be therefore impossbile to create an accurate analysis of such a large group of individuals such as a the national US population.
The same basic flaw exsists in national surveys and all methods of statistical analysis: your results may end up close to the actual figures for which you search, but the reults will never be 100% on point, adn when you're talking about matters dealing with a nation's economy, you need accurate and detailed information so that you don't make mistakes which may influence the lives of hundreds of thousands (if not millions) of people.
Just my 2c, take/leave whatever you want.
IANA neuroscientist...
...but in this article, the scientists are trying to draw conclusions about how the brain functions, from a standpoint relevant to economics, by looking at fMRIs. There's nothing wrong, per se, in doing this, but I don't think brains scans are really a very good tool for determining the mechanism of brain activity in this context, or even a very good mechanism for determining the locality of brian activity. This is because:
1. fMRIs don't have very high resolution (not much less than 100 cubic millimeters per voxel)
2. They measure blood flow, which might be related to where the "thinking" in the brain is most intense, but who's to say that the "real work" isn't happening somewhere else by a smaller number of less blood-consuming neurons.
3. Brain scans only show correlation, not causation- We might be able to say that certain brian activity and behavior seem to be connected, but you never know whether an uncontrollable "third variable" might be mucking up the results (note how these experiments involve some math- maybe the brian regions are just showing activity because of math calculations?)
There seems to be a lot of grant money out there for people who say "hey! I know! let's research X by sticking people doing X in a brain scanner!" The media loves reporting on this stuff for some reason, but it seems many of the results from such studies are pretty shaky and inconclusive, compared to more invasive studies that measure actual receptor activity or responses to drugs- Or involve anatomical studies in cadaver neurons. Again, just my personal opinion- and in some cases, there probably is no other way to get data and some data is better than nothing.
The following field have now just been created..
Neuroreligion: to understand the neurological need to have a faith/religion/cult to be a part of
These neurologists are going to attemtpt to assign "values" to utility, usually with a arithmetical number that they can plug into a differential equation so they can appear impressive. However ye' old Austrian school realized that attempts to utilize the methods of physics in describing economic behaviour are bound to fail due to the problem that people acting purposefully make purposeful decisions while falling bodies or two chemicals reacting with each other do not make purposeful decisions.
One way that the difference between physics and economics really stands out is how cardinal values play a big role in physics down to the tiniest levels but on the level of the individual economic decision maker, cardinal values do not describe well how decisions are made.
Cardinal values are values that you can perform arithmetic on. Examples are weights of things, for instance one man can carry 25kg, two people can carry 50kg, one man can carry 5 things each weighing 5 kg.
Ordinal values are values that are merely descriptive and cannot be combinded, divided, multiplied,etc or doing so produces a nonsensical result. Examples of ordinal values are People's Names, Zip Codes, etc. You can add two zip codes together but it's not going to MEAN anything.
In the same way economic decisions are made based on ordinal desires that at best are only arrangable on a constantly changing scale of preference of known available goods.
Let me put this in Slashdot terms: Why is a vic 20 worthless today but it was worth $100 twenty years ago? Even though there has been significant inflation since then? Because it provides less "utility" then it did then??? No, according to the classical definition of utility, you can still plug it in and program it in basic, just like you did twenty years ago. You can still load text games and play them like you did 20 years ago. It's got a rip roaring 300 baud modem that you can use.
20 years ago, one could work at a decent job for 10 hours and buy a vic 20. Which you might want to do if you were a geek and into basic programming.
Now if one works at ones job for 1/2 hour you can buy a vic 20 on ebay, but if one works at ones job for 10 hours one can buy a regular modern pc. Why would anyone forgo the vic 20? Doesn't it have the same utility and it's selling for 1/20 the price? Well the effort of 9 1/2 hours of work and forgoing the other things you could buy for the money are enough to make it worth while to not bother with the vic20 and pick up the new pc for most people.
So basically all the numbers you applied to your vic20 demand supply/curve differential utility equation are going to be speculative at best because of alternatives , new technology, fads, trends, etc that constantly change the economic landscape.
And a rather sad and relevant example of how many humans do NOT compute the expected value of future events is the freemarket-free trade-libertarian computer/engineering geeks, and how they all seem to think THEY will be rich, and so unionizing or similar organizing is not needed for their occupation
I dont think most libertarians or free-market geeks believe they will become rich or wealthy. I don't quite get where you think that.
This type of personality/age group is typically quite illogical when it comes to calculations of a personal economic nature.
Pot Kettle Black.
I refer you to their historical inclination to be exploited as fodder for the for military-industrial complex profits machine.
Libertarians tend to oppose military industrialization.
You don't make sense.
- You can get a lot of results with just ordinality. (Note you can get these same results with cardinality, you just don't always need it.)
- Economists like to think of themselves as scientific, which often gets interprested as positivistic, and want to avoid making unfalsifiable assumptions.
So, one of the potential boons of neuroeconomics is what you point out: it can empirically start filling in gaps where economists have been avoiding making assumptions. It's possible that might include starting to use cardinal values where before only ordinal were used. It might even get radical into interpersonal comparison of utility. Hopefully it won't jsut be a boondoggle.It is called time preference, but the expectation of inflation doesn't explain it.
For $100 today to be worth more than $115 a week from now, you'd have to have %100,000 annual inflation, which is well outside the expectation of Americans.
And if you adjust all the numbers in question for 10% inflation, for instance, people would then be choosing between $100 today and $115 in a week; and between $91 a year from now and $105 in a year and a week (rounding off the pennies). The rational choice would be to prefer the larger amount in each case; in fact people prefer $100 now to $115 in a week, but would presumably still be indifferent between the $91 and the $105, or if anything prefer the $105.
In considering the more distant future, then, people make more obviously rational decisions, taking the inflation rate into account. But in considering the immediate future people put an apparently irrational premium on having cash in hand.
A number of papers have been written on why this kind of time preference might have been selected for under the circumstances man evolved in; the idea is roughly that "a bird in the hand is worth two in the bush" is a good rule of thumb for hunter-gatherers. See Evolution and Human Nature (pdf) from the Journal of Economic Perspectives, for instance.
This discussion thread contains material on neuroscience. neuroscience is a theory, not a fact, regarding brain function. This material should be approached with an open mind, studied carefully, and critically considered.
"It is not how things are in the world that is mystical, but that it exists." -Ludwig Wittgenstein
IANA neuroscientist...
I am.
1. fMRIs don't have very high resolution (not much less than 100 cubic millimeters per voxel)
Compared with other brain imaging techniques, fMRI has excellent spatial resolution. Where it is lacking is that is has relatively poor temporal resolution - since you can only take a scan every 2 seconds or so (if you are scanning the whole brain) then you can't get very fine information about temporal dynamics.
2. They measure blood flow, which might be related to where the "thinking" in the brain is most intense, but who's to say that the "real work" isn't happening somewhere else by a smaller number of less blood-consuming neurons.
Years of research. The connection between blood flow and increased neural activity is fairly well established.
3. Brain scans only show correlation, not causation- We might be able to say that certain brian activity and behavior seem to be connected, but you never know whether an uncontrollable "third variable" might be mucking up the results (note how these experiments involve some math- maybe the brian regions are just showing activity because of math calculations?)
I'm not sure what the criticism is here. In any scientific experiment, you manipulate one variable and examine it's effect on some measurement, in this case blood oxygenation in the brain. No one experiment answers all the questions.
There seems to be a lot of grant money out there for people who say "hey! I know! let's research X by sticking people doing X in a brain scanner!"
Not enough! It's quite expensive to do fMRI and federal funding from NSF is decreasing. It's not really as if people are throwing money around - grants are very competitive.
Common misconception there, but economics is not about money. Business is about money. Economics is about scarcity and how to make decisions to deal with the problem of scarcity. It just happens that money seems to be one of the scarce things everybody cares about. Anyway, you don't go into econ to become rich, that's what business majors are for. Econ majors are just applied logic geeks.
For example, the idea that humans compute the "expected value" of future events is central to many economic models.
Humans may not do this on an individual basis, no. However, pretty much everyone who makes an economic decision attempts to do this, be it through guessing, heuristics, or with a spreadsheet. The interesting thing about markets is that they collect and aggregate all these decisions together and produce a very accurate result.
That's why, even though people may act without full logic and with error, markets tend to be efficient.
The pro-fmri bias is infuriating really.
The entire field of neuroscience is being slowly dragged into fMRI research because the money is there. And the money is there because brain pictures are pretty, so people who don't understand the underlying science are eager to throw money at the method. That's the really sad thing, an entire field of research is being corrupted because of aesthetics.
Every day valuable non-fMRI methodologies are thrown out the window in favor of crippled methods that are scannable because magnets are being built like Starbucks throughout the world. Inside a magnet, your experimental options are very limited compared to outside.
And for what? it's not as if knowing what part of the brain lights up tells you about how the brain is doing that thing. This article is an excellent example of the layperson naivete that feeds the fMRI cash-cow. Scientists have known about these failings of human decision making for many years. The idea that we are flawed at rational decision making is hardly news. But throw someone in a scanner, see part X light up and suddently we understand how the brain works?
Bollocks.
These imaging studies are useful yes, especially in the context of other things we know about what different parts of the brain do.
But they do not represent some bold (heh) new understanding of "neuroeconomics", which is just decision making theory and neuroscience given a fancy name.
If you want to waste time in college - there is always grad school.
My advice is drop all that and switch to 'tribal dance' or 'history of consciousness.' The girls you will meet are hella cuter.
Not enough?! Argh, it hurts to hear you say that.
Where do you think the money comes from? I'll tell you: it's sucked out of grants that used to go to much more efficient methodologies, like EEG, psychophysics, modelling and even simple behavioral research.
The money you spend in just magnet fees (nevermind the cost of building it in the first place) from just 1 single experiment is enough to pay someone's salary for an *entire year* running 3-4 psychophysics experiments.
Just so people understand what I'm ranting about you're often talking about some $800 in operating fees *per subject*, and at 30 subjects, that's $24,000.
Other methodologies are insanely cheap in comparison. You can buy an entire EEG rig for just $40,000, and each subject costs about $10-$20.
The fact that you consider the atrocious amount of grant money you (I'm guessing you do imaging research from the text of your post) gobble down *insufficient* is frightening to those of us who scrape by on experimental methodologies that are two orders of magnitude cheaper.
Imagers are like army ants, consuming all available grants in their path and always hungry for more money.
This isn't inconsistent with the idea of "how much one man needs." Indeed, with perfect information, we might be able to do better in allocating income in a more "fair" way (I'll leave it to the reader to determine what "fair" is).
Sorry, I'm not trying to be mean. In theory, this would a great way to efficiently allocate resources, assuming that we were ants or individual "cells" in some sort of overall body, similar to the Gaia planet in one of Asimov's books (why can't I remember which one?).
The problem with this idea is the same problem that exists for any kind of pure socialism. We are human beings and too many human beings are abysmally selfish.
The main problem that I have with this kind of technology is that it will be used as yet another way for people in positions of power to control other people. It is part of the perennial problem of the advancement of science. Most of the people who work to advance the overall knowledge of the human race tend to be idealists. Then, when new toys have been developed by engineers, arrogant and powerful people use them to control others or to enrich themselves, all the while thumbing their nose at the very people who helped create them. When they get their new toys, it is like giving them to a barbarian who then goes "look what Grog do with big boom-stick!"
So anyway, while it is interesting to advance the overall understanding of the mind, some people are just going to use this to make the world worse for everyone else.
Similar to the upcoming US election results