Decision Science News

THE TWENTY FIRST ANNUAL MEETING OF THE BRUNSWIK SOCIETY

The Twenty-first Annual Meeting of the Brunswik Society will be held in Toronto, Ontario, Canada on November 10-11, 2005. This years conference will be held at the Sheraton Centre Hotel.

Call for Papers and Participation:

The 21st Annual International Meeting of the Brunswik Society will be held on Thursday and Friday, November 10-11, 2005 Sheraton Centre Hotel in Toronto, Ontario, Canada. The program begins at 1:00 on Thursday afternoon, and ends at 5:30 on Friday. We invite proposals for papers on your recent research and panel discussions on any theoretical or empirical/applied topic related to Egon Brunswik’s philosophy and paradigm. Please send a brief abstract (50 words), and indicate whether the paper/discussion is theoretical or empirical, to Jim Holzworth by Friday, July 17th. Kindly respect this submission due date. The organizing committee is: Jim Holzworth (holz@uconn.edu), Mandeep K. Dhami (mkdhami@uvic.ca), Elise Weaver (eweaver@WPI.EDU), and Tom Stewart (t.stewart@albany.edu).

The meeting is held concurrently with the Psychonomic Society Annual Meeting and just before the Judgment and Decision Society meeting. As planning for the meeting progresses, information and updates will be posted here and on the Brunswik email list. Registration (Deadline November 1, 2005): Please register in advance so we can estimate attendance. You may register online or by email (info@brunswik.org), telephone (518-442-3850), or fax (518-442-3398). The registration fee, due November 1, is $100 US or $125 Canadian. Students may register for $40 US or $50 Canadian. The fee includes the continental breakfast and lunch on Friday.

Checks should be payable to “Brunswik Society” and sent to:

The Brunswik Society
c/o Tom Stewart
Center for Policy Research
135 Western Ave. Milne 300
Albany, NY 12222

Accommodations:

The meeting will be held at the Sheraton Centre Toronto

123 Queen Street West, Toronto, Canada
Phone (416) 361-1000
Fax (416) 947-4854

If you call for a reservation, say you are with the Psychonomic Society. Arrangements for the Brunswik Society meeting are made through the Psychonomic Society.

THE NEUROANATOMICAL BASIS OF UNDERSTANDING SARCASM AND ITS RELATIONSHIP TO SOCIAL COGNITION:

Detecting sarcasm relies upon the ability to monitor other peoples’ mental states, thoughts and feelings. Detecting sarcasm then is necessary for effective decision making and social cognition. A recent article in Neuropsychology offers findings regarding the neurobiology of comprehension of sarcasm and the cognitive processes underlying it.

ABSRTACT:

“The authors explored the neurobiology of sarcasm and the cognitive processes underlying it by examining the performance of participants with focal lesions on tasks that required understanding of sarcasm and social cognition. Participants with prefrontal damage (n 25) showed impaired performance on the sarcasm task, whereas participants with posterior damage (n 16) and healthy controls (n 17) performed the same task without difficulty. Within the prefrontal group, right ventromedial lesions were associated with the most profound deficit in comprehending sarcasm. In addition, although the prefrontal damage was associated with deficits in theory of mind and right hemisphere damage was associated with deficits in identifying emotions, these 2 abilities were related to the ability to understand sarcasm. This suggests that the right frontal lobe mediates understanding of sarcasm by integrating affective processing with perspective taking.”

QUOTES:

“Irony is an indirect form of speech used to convey feelings in an indirect way. Ironic utterances are characterized by opposition between the literal meaning of the sentence and the speaker’s meaning (Winner, 1988). One form of irony is sarcasm. Sarcasm is usually used to communicate implicit criticism about the listener or the situation. It is usually used in situations provoking negative affect and is accompanied by disapproval, contempt, and scorn (Sperber & Wilson, 1986). The listener must identify the opposition between the literal meaning of this sentence (Joe is working too hard) and the boss’ intention to criticize Joe (Joe is a lazy worker). The ironic speaker intends that the listener detect the deliberate falseness; he makes a statement that violates the context and intends the listener to recognize this statement (Dennis, Purvis, Barnes, Wilkinson, & Winner, 2001). The interpretation of sarcasm thus involves understanding of the intentions expressed in the situation and may include processes of social cognition and theory of mind.”

PROFESSOR DICK WITTINK

Dick Wittink, one of the world’s leading professors of business, member of the Royal Dutch Academy of Sciences, advisor to many, and Editor of the Journal of Marketing Research has died Tuesday at age 59, as reported in the New Haven Register. I was in regular contact with Dick over the past months and am stunned to learn of this tragedy.

As an academic, Dick was rare in exhibiting expertise in multiple areas including quantitative analysis, the economics of marketing, and consumer behavior. He cared about using knowledge about decision making to improve health care. Some accomplishments are detailed on his page at Yale, where he was George Rogers Clark Professor of Management and Marketing.

We extend our condolences.

SOCIETY FOR CONSUMER PSYCHOLOGY CRUISE-CONFERENCE

The Society for Consumer Psychology (SCP) will be holding its Annual Winter Conference on February 9-13, 2006. The SCP conference provides a relatively intimate forum, with opportunities for a high level of interaction among participants interested in the integration of psychology and consumer research. This year the conference will take place at sea, on a Carnival Cruise! Not only will you hear brilliant colleagues present intriguing research aboard the Imagination cruise ship, but you will also have the opportunity to spend time at the ports of Key West, Florida and Cozumel, Mexico.

Carnival Cruise from Port of Miami February 9-13, 2006

We will set sail from the port of Miami at 4:00 PM on February 9th and return to the port of Miami at 8:00 AM on February 13th. Since the conference will be at sea much of the time, it will be very difficult and costly to arrive late or leave early. Therefore, those who wish to participate in this conference will need to plan on attending the entire event. We have reserved a set of rooms at discounted conference rates, and the prices will be comparable to the cost of registration, hotel + meals at prior SCP conferences, with options ranging from around $720 per person, double occupancy (you will share the cabin with another conference attendee) to around $1140 per person single occupancy. These prices are for ocean view cabins and include conference registration, port charges, taxes, insurance (travel), meals, lodging, and gratuity. Students will receive a $50 discount, and non-SCP members will pay an additional $50. Participants also have the option of upgrading to a suite, which are limited in supply and not part of SCP’s contract with Carnival. For more details on the cruise, the cabins, shore excursions, etc. see:

http://www.carnival.com/Ship_Detail.aspx?shipCode=IM

(click on the ‘Western Caribbean, 4-day’ option to learn more about the ship’s itinerary)

For questions on cruise logistics and/or travel arrangements, please contact our travel agent, Sonatina Fernandes (Tel: 319-351-1911; sonatina1000 at yahoo.com)

Conference Submissions:

We will be accepting proposals for competitive papers, special sessions, and working paper sessions. Working paper sessions will involve presentations at a table in an “AMA job interview style” format. We welcome diverse methodologies including experimental research, ethnography, survey research, or other methodologies relevant to the study of consumer psychology.

All submissions should be sent electronically as a pdf document to http://sloanspace.mit.edu.

All SCP members will have an account on SloanSpace soon (you will get an email with the information). If you don?t get an account and need one, please contact Leonard Lee at: leonardl at mit.edu.

Competitive papers and working paper session submissions should be no longer than 12 pages, double-spaced, in a 12 point font (including bibliography and tables). This limit is to encourage authors to describe their research to the reviewers in a succinct manner. Proposals should be submitted on SloanSpace in pdf format. In the case of papers, authors must agree, if the submission is accepted, to publish either the complete paper or an abstract in the Conference Proceedings. At least one author of each submitted competitive paper/working paper session must agree to register and present the paper at the conference, if it is accepted. Submissions must be received by Friday, September 2nd, 2005.

Special topic session proposal submissions should include (a) the rationale for the session, (b) a list of participants, and (c) a one page abstract for each paper. Submissions should be double-spaced in 12 point font. As the goal of the conference is to stimulate intellectual discussions, there should only be three papers and one discussant per session. The discussant of each session should be prepared to not only discuss the papers presented, but more importantly to engage the audience in conversation about the research ideas and how to forward the research in this stream. The chair of the session should be prepared to make sure that all talks proceed (and end) on schedule. Special topic session presenters are required to publish at least an abstract of their presentations (or entire papers if they prefer) in a Proceedings volume. As with the competitive papers and working paper sessions, special topic session proposals should be submitted on SloanSpace as attachments in pdf format. At least one author of each presentation in the proposal must agree to register and present at the conference, if their proposal is accepted. Submissions must be received by Friday, September 2nd, 2005.

We look forward to seeing you at the SCP cruise-conference next
February!

Dan Ariely (Ariely at mit.edu)
Baba Shiv (shiv_baba at gsb.stanford.edu)
Michal Ann Strahilevitz (SCPcruise at yahoo.com)

MAKING INFERENCES ABOUT WHAT INTERESTS

Behavioral Targeting is the ability to deliver ads to consumers based upon their recent behavior viewing web pages, shopping online for products and services, typing keywords into a search engine or a combination of all three. “Interest-Based Targeting allows large-brand advertisers… to target more precisely the audience they are trying to reach with the message they are trying to convey,” said Randy Kilgore, vice president of advertising, The Wall Street Journal Online. A recent white paper (requires registration) out of the Wall Street Journal Online and eMarketer discusses this recent phenomenon in terms of what it might mean for today’s business to adopt such an approach to advertising.

ABSTRACT:

Behavioral targeting has been around, in various forms, since the late 1990s. Previous attempts failed due to problems with privacy and technology, but this generation of software appears more robust, and marketers seem more accepting. Today’s behavioral targeting can be done on individual Web sites, on networks and via adware applications. While behavioral targeting will certainly be a part of a smart marketer’s online arsenal, issues of privacy, data sharing and implementation will keep it from becoming a dominant form of advertising in the way paid search has become. However, behavioral targeting offers a compelling benefit to marketers: the ability to deliver relevant branding messages to a highly targeted audience.

QUOTES:

“The basic premise behind behavioral targeting is that what’s important for online advertising is not necessarily a page of content or a section of a Web site, but the actual person who is viewing and interacting with that content. Seen in that light, behavioral targeting could presage a shift in the online advertising, paradigm — away from the notion of buying “pages” and instead toward the idea of reaching “people”. Instead of buying ads that would appear adjacent to certain content, ads would instead appear only to someone who has demonstrated, through previous actions, that they are potentially interested. The end result, theoretically, would be a perfect economy, where no ad is wasted.”

“Earlier this year, Snapple ran an ad campaign on the iVillage Web site that tested behavioral targeting. The beverage company wanted to pitch its Snapple-a-Day meal-replacement drink to women who care about health and exercise. Using technology from Tacoda, iVillage pinpointed users who visited its Diet & Fitness channel three times within the past 45 days. Then, no matter where within the iVillage site these targeted visitors surfed, they were shown the Snapple-a-Day ads. By comparing those targeted visitors with a control group that saw the same Snapple-a-Day ads only on the Diet & Fitness channel, researcher Dynamic Logic found that the run of site behavioral targeting ads increased brand metrics across the board. For example, the behavioral targeting ads increased ad awareness by 51%, while content targeting resulted in only a 33% boost.”

“One behavioral targeting campaign, from American Airlines on the Wall Street Journal site, tracked readers of WSJ.com’s travel columns and features. Since the “one flight-a-year site visitor was the airline’s target,” as reported in Advertising Age, the “rich media, large-format ads, which featured testimonials from customers” were served across the site to those visitors who “spent time eyeballing a travel article on one occasion.” In this case, “Revenue Science made an educated guess that that person traveled once a year on business.” This example indicates how behavioral targeting may be used to pinpoint a group within a group. In this case, the American Airlines campaign narrowed the funnel not just to identify anyone reading travel articles—after all, visitors who read that section frequently might well be frequent travelers—but to the once-a-year business traveler. The campaign showed that audience composition was improved with behavioral targeting. Against especially high-frequency business travelers, audience composition increased 145%, according to Revenue Science. Brand metrics showed improvement, and in some cases, message association for targeted business travelers increased as much as 218%.”

“All the players involved in behavioral targeting take great pains to stress that they do not collect personally identifiable information (PII) in order to deliver advertising. This is one important distinction from some of the targeting systems of the past. However, behavioral targeting still inhabits some rather gray territory when it comes to consumer knowledge and acceptance.”

ABOUT THE AUTHOR:

Debra Aho Williamson is the senior analyst for the eMarketer research firm.

WHAT IS LOSS AVERSION?:

Loss aversion, or the tendency for people to prefer avoiding losses over acquiring equivalent gains, is a much-cited psychological concept receiving more and more attention in economic analysis. A recent article presents a behavioral definition of loss aversion and dicusses implications for original and cumulative prospect theory.

ABSTRACT:

“A behavioral definition of loss aversion is proposed and its implications for original and cumulative prospect theory are analyzed. Original prospect theory is in agreement with the new loss aversion condition, and there utility is capturing all effects of loss aversion. In cumulative prospect theory loss aversion is captured by both the weighting functions and the utility function. Further, some restrictions apply for the weighting functions involved in the latter model.”

QUOTES:

“It has first been proposed by Kahneman and Tversky (1979) in the framework of prospect theory, and later it has also been defined for choice under certainty by Tversky and Kahneman (1991). The popularity of loss aversion is due to the fact that it can explain many phenomena which remain paradoxes in traditional choice theory. Well-known examples are the endowment effect (Thaler, 1980), the equity premium puzzle (Benartzi and Thaler, 1995), and the status quo bias (Samuelson and Zeckhauser, 1988). In recent years loss aversion has also frequently been applied in behavioral finance (cf. Barberis et al., 2001; Barberis and Huang, 2001; Berkelaar and Kouwenberg, 2000a, b; Roger, 2003; Gomes, 2003). A further important aspect of loss aversion is the fact that it can resolve the criticism on expected utility put forward by Rabin (2000) and Rabin and Thaler (2001)who showed that reasonable degrees of risk aversion for small and moderate stakes imply unreasonable high degrees of risk aversion for large stakes.”

“Kahneman and Tversky’s (1979, p. 279) view of loss aversion is as follows: An individual is loss averse if she or he dislikes symmetric 50–50 bets and, moreover, the aversiveness to such bets increases with the absolute size of the stakes. This clearly is a behavioral concept defined entirely in terms of preferences. As such, the concept is model independent. Kahneman and Tversky (1979) showed that, in the framework of prospect theory, this definition of loss aversion is equivalent to a utility function which is steeper for losses than for gains. As probability weighting played no role in the derivation of this result, it appears that the effect of loss aversion is captured solely by the utility function. It is, therefore, not surprising that nearly all work on loss aversion employed utility as the carrier of loss aversion. For instance, Tversky and Kahneman (1992, p. 303) assume that utility is steeper for losses than for gains. Wakker and Tversky (1993) propose a preference condition based on a cardinal utility index independent of probability weighting. The latter condition has empirically been confirmed in a recent test in Schmidt and Traub (2002). In a review of non expected utility theories Starmer (2000) highlights the descriptive advantages of rank and sign dependent models, and summarizes loss aversion as utility being steeper for losses than for gains. Benartzi and Thaler (1995) view loss aversion as a property of utility exhibited at the status quo. This view is also adopted in K¨ obberling and Wakker (2003), where an index of loss aversion is defined as the ratio of the left and right derivative of utility at the status quo. All the previous conditions employ a comparison of utility differences between gains and losses of equal absolute size. In contrast Neilson (2002) suggests stronger conditions by dropping this symmetry requirement.”

“The way loss aversion is currently understood, it is essential to identify utility independent of probability weights prior to any analysis of loss attitudes. Moreover, given that most definitions of loss aversion are not formulated in terms of pref erences, it follows that loss aversion is no longer model independent. Since most studies mentioned above do not use original prospect theory but the modern cumulative prospect theory instead, their notion of loss aversion does no longer agree with the behavioral concept proposed by Kahneman and Tversky (1979).”

ABOUT THE AUTHORS:

ULRICH SCHMIDT
Lehrstuhl fuer Finanzmarkttheorie, University of Hannover, Germany. The research interets of Ulrich Schmidt are decision theory, public economics, finance and experimental economics. He has publshed more than thirty articles in journals like Management Science, Journal of Public Economics, Journal of Mathematical Economics, Journal of Risk and Uncertainty und Journal of Mathematical Psychology. He is member of the editorial board of Theory and Decision and officer of the Economic Science Association. Homepage.

HORST ZANK
“Horst Zank teaches at the School of Economic Studies, The University of Manchester, UK. Horst received his Master’s degree in mathematics from the University of Technology Aachen (Germany) in 1994. He was a PhD student at Maasticht University (the Netherlands) between 1995 and 1999. The topic of his PhD study was “Individual Decision Making under Risk/Uncertainty.” From Horst’s homepage at the University of Manchester.

TIME IS MONEY: TIME PRESSURE, INCENTIVES, AND THE QUALITY OF DECISION-MAKING

Do time pressure and time-dependent incentive schemes have an influence on the quality of decision-making in economics and finance? A recent discussion paper on strategic interaction out of the Max Planck Institute (series) investigates the effects of time pressure on the quality of economically relevant decision-making. In particular, the article address two research questions: (i) Is there a tradeoff between the quality of decision-making and time pressure? (ii) How do time-dependent incentive schemes affect the (possible) trade-off between the quality of decision-making and time pressure?

ABSTRACT:

“Many decisions in economics and finance have to be made under severe time pressure. Furthermore, payoffs frequently depend on the speed of decision-making, like, for instance, when buying and selling stocks. In this paper, we examine the influence of time pressure and time-dependent incentive schemes on the quality of decision-making in an experimental beauty-contest game. We find that convergence to equilibrium is faster and payoffs are higher under low time pressure than under high time pressure. Interestingly, time-dependent payoffs under high time pressure lead to significantly quicker decision-making without reducing the quality of decisions.”

QUOTES:

“Investment decisions – like trading stocks – are the prime example for the relevance of time pressure and time-dependent incentive schemes. Watching the floors of the New York Stock Exchange, for instance, convinces even the layman that trading is, typically, prone to severe time pressure, yielding the conclusion that there is not much time to decide in order to make money in some instances. But, more than that, time is money, because profits from trading (both for the principal investor and the agent trader) may depend crucially on the speed of the trader’s reaction to relevant new information…”

“Finally, consumers – the main decision-making agents in economics – often have to make decisions under time pressure. Think, for instance, of shopping a few minutes before shops close or participating in an auction. Some companies seem to be willing to exploit the existence of time pressure as part of their sales strategy by offering special discount prices for a typically rather narrow time period. Shopping TV-channels, like Home Shopping Europe (HSE), provide another example for deliberately inducing time pressure. When selling products with a limited number of available items (or at least, when the impression of scarcity of items is intended), the number of sold or still available items is updated and shown on the TV-screen after each purchase, thereby pushing consumers to make a quick decision if they are interested in the product…”

“Psychology offers several explanations for a negative influence of time pressure on the quality of decision-making. Time pressure induces subjects to rely more heavily on heuristics or so-called rules of thumb for decision-making in complex environments.6 It has long been established that such heuristics – even in the absence of time press – frequently result in systematic decision-making errors (Tversky and Kahneman, 1974; Wickens and Holland, 2000). Time pressure adds to the pitfalls of heuristics, because it prevents a thorough (and time-consuming) check of the internal logic of decisions and its consistency with the expected behavior of other subjects and because it induces subjects to focus on the most salient cues when making a decision, even if these cues are of no importance for the decision to be made (Wallsten and Barton, 1982). Besides affecting actual decisions, time pressure has also an influence on the willingness to gather information and process it before even making a decision. This phenomenon is known as ‘closing of the mind’ (Kruglanski and Freund, 1983), meaning that people seek cognitive closure and stop considering multiple alternatives…”

“Our results suggest that convergence to the game-theoretic equilibrium is faster and payoffs are higher with a very weak time constraint (practically no time pressure), compared to a situation where subjects face a rather tight time constraint of only 15 seconds to decide. Hence, time pressure has a negative effect on the quality of decisions and on subjects’ performance. Our time-dependent incentive scheme in case of time pressure induces significantly quicker decision-making and, on average, even improves the quality of decision-making instead of reducing it, even though the latter effect is not statistically significant. We suspect that the time-dependent incentive scheme induces a shift in the effort levels exerted by subjects that offsets the negative effect of the decrease in decision-making time on the decision’s quality. The opportunity to gain considerably higher payoffs seems to trigger higher concentration or effort levels. Hence, our results suggest that if decisions have to be taken under severe time pressure, the use of time-dependent monetary incentives should be considered as an appropriate means to speed up decision making significantly without generally deteriorating decision-making quality…”

ABOUT THE AUTHORS:

Martin G. Kocher is an Assistant Professor in the Department of Economics, Institute of Public Finance, University of Innsbruck, Austria. Homepage

Matthias Sutter is Professor of Economics, Max Planck Institute for Research into Economic Systems, Strategic Interaction Group. Homepage

2005 ANNUAL MEETING OF THE SOCIETY FOR JUDGMENT AND DECISION MAKING CALL FOR ABSTRACTS:

The Society for Judgment and Decision Making (SJDM) invites abstracts for symposia, oral presentations, and posters on any interesting topic related to judgment and decision-making. Completed manuscripts are not required.

LOCATION, DATES, AND PROGRAM:
SJDM’s annual conference will be held at the Sheraton Centre in Toronto, ON, Canada, from November 12-14, 2005. As in 2004, we’ve added a full day (Saturday) to the schedule to make room for more presentations and for two keynote speakers:

Keynote speaker #1: Michael Posner, Professor Emeritus of Psychology, University of Oregon, and author of many path-breaking articles on neural mechanisms and structures underlying selective attention.

Keynote speaker #2: Xg4k%h Sh8&v@!, Due to heightened security, we cannot provide the name of the second keynote speaker at this point.

SUBMISSIONS:
The deadline for submissions is July 15, 2005.
Submissions for symposia, oral presentations, and posters should be made through the SJDM website at http://sql.sjdm.org. Technical questions can be addressed to the Webmaster, Alan Schwartz, at www@sjdm.org. All other questions can be addressed to Judy Lin, at judylin@mit.edu.

ELIGIBILITY:
At least one author of each presentation must be a member of SJDM. Joining at the time of submission will satisfy this requirement. A membership form may be downloaded from the SJDM website at http:/ www.sjdm.org. An individual may give only one talk (podium presentation) and present only one poster, but may be a co-author on multiple talks and/or posters.

AWARDS:
The Best Student Poster Award is given for the best poster presentation whose first author is a student member of SJDM.

The Jane Beattie Travel Memorial Scholarship subsidizes travel to the United States for scholarly pursuits related to JDM research, including attendance of the annual meeting. Further details regarding these awards are available at http://www.sjdm.org.

PROGRAM COMMITTEE:
Craig Fox (institutional memory)
Dan Ariely (program chair)
Derek Koehler (conference coordinator)
Ellen Peters (speaker coordinator)
George Wu (poster chair)

BEHAVIORAL ECONOMICS:

“Behavioral economics [applies] scientific research on human and social cognitive and emotional [patterns] to better understand economic decisions and how they affect market prices, returns and the allocation of resources. The fields are primarily concerned with the rationality, or lack thereof, of economic agents. Behavioral models typically integrate insights from psychology with neo-classical economic theory… Behavioral analyses are mostly concerned with the effects of market decisions, but also those of public choice…

At the outset behavioral economics […] theories were developed almost exclusively from experimental observations and survey responses, though in more recent times real world data has taken a more prominent position. fMRI has also been used to determine which areas of the brain are active during various steps of economic decision making. Experiments simulating market situations such as stock market trading and auctions are seen as particularly useful as they can be used to isolate the effect of a particular [heuristic] upon behavior; observed market behavior can typically be explained in a number of ways, carefully designed experiments can help narrow the range of plausible explanations. Experiments are designed to be incentive compatible, with binding transactions involving real money [as] the norm. ” (from Wikipedia)

BEHAVIORAL ECONOMICS ARTICLES:

*Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving by Richard H. Thaler; University of Chicago and NBER and Shlomo Benartzi; UCLA Anderson

*Behavioral Economics by Sendhil Mullainathan; MIT and NBER and Richard H. Thaler; University of Chicago and NBER

*Behavioral Economics and Institutional Innovation by Robert J. Shiller; Yale University

*Amos Tversky and the Ascent of Behavioral Economics by David Laibson; Harvard University and Richard Zeckhauser; Harvard University

NEUROECONOMICS:

Neuroeconomics is a multidisciplinary research field incorporating neuroscience, economics, and psychology aimed at developing an understanding of how we make choices. It looks at the brain when we evaluate decisions, categorize risks and rewards, and when we interact with others. (from Wikipedia)

“Neuroeconomics is an interdisciplinary research program with the goal of building a biological model of decision making in economic environments. Neuroeconomists ask, how does the embodied brain enable the mind (or groups of minds) to make economic decisions? By combining techniques from cognitive neuroscience and experimental economics we can now watch neural activity in real time, observe how this activity depends on the economic environment, and test hypotheses about how the emergent mind makes economic decisions. Neuroeconomics allows us to better understand both the wide range of heterogeneity in human behavior, and the role of institutions as ordered extensions of our minds.” (from the Neuroeconomics Explained post from professor Kevin McCabe’s Weblog)

RECENT NEUROECONOMICS ARTICLES:

* From The New York Times: Brain Experts Now Follow the Money:

“People are efficient, rational beings who tirelessly act in their own self-interest. They make financial decisions based on reason, not emotion. And naturally, most save money for that proverbial rainy day. Right?… Well, no. In making financial decisions, people are regularly influenced by gut feelings and intuitions. They cooperate with total strangers, gamble away the family paycheck and squander their savings on investments touted by known liars…

Such human frailties may seem far too complicated and unpredictable to fold into economic equations. But now many neuroscientists are beginning to argue that it is time to create a new field of study, called neuroeconomics…

To explore economic decision-making, researchers are scanning the brains of people as they engage in a variety of games designed by experimental economists. The exercises are intended to make people anticipate what others will do or what others will infer from the person’s own actions. These researchers are busy scanning the brains of people as they make economic decisions, barter, compete, cooperate, defect, punish, engage in auctions, gamble and calculate their next economic moves. Based on their understanding of how fluctuations in neurons and brain chemicals drive those behaviors, the neuroscientists are expressing their findings in differential equations and other mathematical language beloved by economists…

The brain needs a way to compare and evaluate objects, people, events, memories, internal states and the perceived needs of others so that it can make choices. It does so by assigning relative value to everything that happens. But instead of dollars and cents, the brain relies on the firing rates of a number of neurotransmitters — the chemicals, like dopamine, that transmit nerve impulses. Novelty, money, cocaine, a delicious meal and a beautiful face all activate dopamine circuits to varying degrees; exactly how much dopamine an individual generates in response to a particular reward is calibrated by past experience and by one’s own biological makeup.”

* From Business Week: Why Does logic often takes a backseat in making decisons?: This question may suggest that the study of neuroeconomics may topple the notion of rational decision-making.

“The National Hockey League and its players wrangle over a salary cap. The impasse causes the season to be canceled. Everybody loses. What went wrong?

According to the new science of neuroeconomics, the explanation might lie inside the brains of the negotiators. Not in the prefrontal cortex, where people rationally weigh pros and cons, but deep inside, where powerful emotions arise. Brain scans show that when people feel they’re being treated unfairly, a small area called the anterior insula lights up, engendering the same disgust that people get from, say, smelling a skunk. That overwhelms the deliberations of the prefrontal cortex. With primitive brain functions so powerful, it’s no wonder that economic transactions often go awry. “In some ways, modern economic life for humans is like a monkey driving a car,” says Colin F. Camerer, an economist at California Institute of Technology.”

* From The Princeton Weekly Bulletin: Take it or Leave It: Brain imaging study reveals interplay of thought and emotion in economic decisions. By Steven Schultz

* From PLoS Biology: A Neuroeconomics Approach to Inferring Utility Functions in Sensorimotor Control:
Economists use the concept of a utility function, which increases with increasing desirability of the outcome, to characterize human decision-making about physical movement.

* From Science: Separate Neural Systems Value Immediate and Delayed Monetary rewards: by Samuel McClure, David Laibson, George Loewenstein and Jonathan Cohen. Are the two birds in the bush a better choice than the one in your hand?

*From Science: The Involvement of the Orbitofrontal Cortex in the experience of regret: Neural responses associated with regret in gambling tasks.