Is banking on neuroscience a false economy?

The Economist has a great article taking a wide-angle view of neuroeconomics, asking whether it actually contributes anything useful to our understanding of economic systems or whether its just a personal psychology of gains and losses that won’t actually scale.

The fiercest attack on neuroeconomics, and indeed behavioural economics, has come from two economists at Princeton University, Faruk Gul and Wolfgang Pesendorfer. In an article in 2005, “The Case for Mindless Economics” [pdf], they argued that neuroscience could not transform economics because what goes on inside the brain is irrelevant to the discipline. What matters are the decisions people take—in the jargon, their “revealed preferences”—not the process by which they reach them. For the purposes of understanding how society copes with the consequences of those decisions, the assumption of rational utility-maximisation works just fine.

But today’s neuroeconomists are not the first dismal scientists to dream of peering inside the human brain. In 1881, a few years after William Jevons argued that the functioning of the brain’s black box would not be known, Francis Edgeworth proposed the creation of a “hedonimeter”, which would measure the utility that each individual gained from his decisions. “From moment to moment the hedonimeter varies; the delicate index now flickering with the flutter of the passions, now steadied by intellectual activity, low sunk whole hours in the neighbourhood of zero, or momentarily springing up towards infinity,” he wrote, poetically for an economist.

Part of the scepticism seems to originate from more general reservations about the results of brain scanning studies being over-interpreted, echoing wider concerns in cognitive neuroscience.

What’s interesting though is that the article mentions that neuroeconomics researchers are turning to transcranial magnetic stimulation (TMS) – a technique that alters brain function for a few hundred milliseconds while people are actively completing tasks.

Because TMS alters brain function, it’s not just showing you a correlation like brain scans do. If task performance changes when you’ve altered that brain area you can infer that the particularly part of the cortex you’ve targeted is causally involved in the psychology of the task.

Along these lines, one recent high-profile study [pdf] managed to alter participants’ fairness behaviour in the Ultimatum Game (a common experimental task) when the function of the upper outside surface of the right frontal lobe was disrupted.

Link to The Economist article ‘Do economists need brains?’.
pdf of ‘The Case for Mindless Economics’.
pdf of TMS study on fairness in the Ultimatum Game.

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