Social Econ Blog

Tyler Cowen's column in the NYTimes yesterday was about the interesting new field of neuro-economics. These researchers try and understand what's going on in the brain while people make decisions. While it is still questionable whether or not these studies are externally valid (i.e., do people think the same in "real world" situations), I still think this stuff is interesting. Here's a taste:

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. Camelia Kuhnen and Brian Knutson, two researchers at Stanford University, have found that people are more likely to take a foolish risk when their brains show this kind of activation.

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. This may help explain why so many investors are reluctant to seek out foreign stock markets, even when they could diversify their portfolios at low cost.

If one truth shines through, it is that people are not consistent or fully rational decision makers. Peter L. Bossaerts, an economics professor at the California Institute of Technology, has found that brains assess risk and return separately, rather than making a single calculation of what economists call expected utility.

At the end of the article, Cowen suggests scanning voters brains. I don't know if that has been done, but there is an interesting study which shows that partisans don't rationally evaluate information which challenges their side. You can read about these fascinating (and troubling) results here. The test:

Researchers asked staunch party members from both sides to evaluate information that threatened their preferred candidate prior to the 2004 Presidential election. The subjects' brains were monitored while they pondered.

The results:

"None of the circuits involved in conscious reasoning were particularly engaged," Westen said. "Essentially, it appears as if partisans twirl the cognitive kaleidoscope until they get the conclusions they want, and then they get massively reinforced for it, with the elimination of negative emotional states and activation of positive ones."