Neuroeconomics is a relatively new branch of science. Professor Jonathan Cohen, a director at the Princeton Neuroscience Institute, describes it as a discipline that tries to bridge economics, psychology and neuroscience.
In a Q&A for Yale Insights he asserts, “I think of economics and psychology as really, in some sense, one discipline. I know that that's a strident statement to make, but they really are siblings separated at birth. Psychology and economics are complementary disciplines, in many cases studying the same phenomena.”
Watching the brain make decisions
In practical terms, neuroeconomics involves analysing the brain functions behind decision-making.
Professor Michael Platt from the Wharton University of Pennsylvania spoke at the World Economic Forum in Davos to explain how the discipline could help us to make better decisions.
He told the audience, “We can measure how much you value something by looking inside your brain. You don’t even have to tell us anything about it. So we can measure your preferences by putting you on an MRI machine and taking snapshots of your brain in action and we can predict your decisions. The brain weighs evidence and value separately to make a decision.’’
Hit the gas, or hit the brakes?
Professor Platt says the values we apply to similar decisions can change over time, or from moment to moment. Whether we are running on time, or we’re late for work can influence how we’ll judge a decision to pass a traffic signal that’s changing from green to red.
He explains there is an economic element to such decisions. “Turns out, the brain has evolved an elegant, and it turns out a mathematically optimal way of solving this problem. All this means is that you've got two buckets in your brain, and each time you get a little bit of evidence, saying the light is red, it goes into the red bucket. If you get a little bit of evidence that the light is yellow, it goes into the yellow bucket. Whichever bucket fills up first wins, that’s the decision that you make.”
Professor Platt told the Davos audience that neuroeconomic techniques are now being applied to areas much less mundane than the decision to drive through a traffic signal.
“My colleagues at Stanford University, for example have shown that by scanning the brains of a limited number of people in the laboratory they can predict the effectiveness of micro-lending campaigns on the Internet.
“We could also use the same approach to fine-tune our messages to help people make healthy choices. I think another area of potential application is aligning consumers with products, right? This is sort of precision marketing.”