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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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"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? :)
Economics and the existance of the economy is based on exchange, not greed. Economics is the study of choice and policy within a given theoretical framework, not the study of greed with the implicit assumption of taking from the have nots. Once/when we "truly understand the mind," the economy will simply be better, not obsolete.
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).
Your point is well-taken, but it's an issue of definition. "Greed" has a negative connotation.. it implies a one-sidedness to a transaction, or one party using their market power to exploit another. What fuels exchange is differences in prices and preferences -- the fact that you and I value things differently.
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.
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?
Well, economics is a social science. As such, it most likely will never rest upon firm rules such as those in the natural sciences. Cognitive science won't provide those rules because it merely describes the brain's functionality on a neural level. But quite frankly, humans are not the sum of our neural activity (to take from another school of psychology, Gestalt). If we view consciousness as an emergent property like John Searle does then the inability to make this correlation becomes clear.
Summary: looking at the brain won't create miralculously successful economic theories/"laws".
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).
well, there's a bit of a dramatic oversimplification...
while it is potentially true that free market exchanges benefit the two consenting parties (although this is not always the case, especially where highly inelastic goods and services are involved. think: crack dealer) there is often a strong negative effect on non-consenting third parties.
these by-effects of free marketism are called "externalities". for those of you who slept through econ 220, the technical definition of an externality is "when the actions of one agent (in a free exchange) affect the interests of another agent other than by affecting prices".
the classic example of an externality as posited by milton friedman is that of the company with the smoke stack that dirties someone's shirt downwind. the owner of the shirt must pay for its cleaning and that cost is not borne by the factory owner. it's freebie. we've see a lot of externalities in the modern "free market" economy, the most obvious ones being environmental: ie, the chemical company that dumps its waste into the river for "free".
of course there are tonnes of other externalities in the modern economy. the wiki page on it is here but you'll need to have been awake for econn 220 to grok it.
bottom line: saying that a free market transaction benefits both parties is an oversimplification and does nothing to contribute to a meaningful debate on economics.
2 1337 4 u!
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.
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.