The Marketplace in Your Brain
Neuroscientists have found brain cells that compute value. Why are
economists ignoring them?
By Josh Fischman
Lauren Lancaster for The Chronicle Review
Screens show an experiment and results from a
functional-magnetic-resonance-imaging machine in the lab at the Center for
Neuroeconomics at New York U. Elizabeth Phelps, the psychologist running this
project, says that she was "initially skeptical" that economics could
refine neuroscience but that she has become a convert.
In 2003, amid the coastal greenery of the Winnetu Oceanside Resort, on
Martha's Vineyard, a group of about 20 scholars gathered to kick-start a new
discipline. They fell, broadly, into two groups: neuroscientists and
economists. What they came to talk about was a collaboration between the two
fields, which a few researchers had started to call "neuroeconomics."
Insights about brain anatomy, combined with economic models of neurons in
action, could produce new insights into how people make decisions about money
and life.
A photo taken during one of those
sun-dappled days captures the group posed and smiling around a giant chess set
on the resort lawn. Pawns were about two feet tall, kings and queens about four
feet. Informally, the neuroscientists began to play the black pieces. The
economists began to play white.
Today, nearly a decade later, a few black
pawns have moved down the board. But the white pieces have stayed put. "I
would say that neuroeconomics is about 90 percent neuroscience and 10 percent
economists," says Colin F. Camerer, a professor of behavioral finance and
economics at the California Institute of Technology and one of the prime movers
in the new field. "We've taken a lot of mathematical models from economics
to help describe what we see happening in the brain. But economists have been a
lot slower to use any of our ideas."
On Camerer's side, there has been a good
deal of action. Neuroeconomics came into being around the turn of this century,
growing out of a critique of the basic idea in economics that people are driven
by rational attempts to maximize their own happiness. A new breed of behavioral
economists had noted that in reality, individual definitions of
"maximize" and "happiness" seemed to vary. Neuroeconomists
added the idea that, by mapping parts of the brain doing the maximizing and the
happiness-defining, they could better account for those actions.
Through experiments, researchers have
shown that when people reject a low, unfairly priced offer, a part of the brain
associated with disgust kicks in, but that when they view the offer as fair, a
brain region linked to reasoning seems more active. Researchers have also
tackled the puzzle of "overbidding," when people pay too much for
something. An area called the striatum, associated with rewards, is more active
when people bid high in an auction because they fear losing an item, but is not
as active when they think they have a good chance of winning. So fear of losing
may be key to things like overvalued stocks.
Other research has shown that decisions to
be very social and involved with a group, rather than hang on the fringes, may
be linked to an especially active gene for dopamine, a neurotransmitter—and
that the social tendency may be inherited.
This week hundreds of neuroeconomists will
convene for their annual meeting to hear more about this kind of work, a mark
of how far the field has come since that tiny gathering on Martha's Vineyard.
They have secured millions of dollars in research financing from the National
Institutes of Health and the National Science Foundation. Their papers are
regularly published in leading journals like Nature andScience.
Yet economists for the most part have not
been moved. Two of them, Princeton University's Faruk Gul and Wolfgang
Pesendorfer, argued in a paper called "The Case for Mindless
Economics" that the discipline has been doing just fine by ignoring brain
activity and looking only at results. David K. Levine, a professor of economics
at Washington University in St. Louis, puts it more starkly: "Look, if you
are trying to understand a pilot's ability to land a crippled plane, it's not
the patterns of his neuron firing that's important. It's the experience and
training that he's had, and the result of the landing. Neuroeconomics hasn't
offered anything that can improve on those measures."
This is not exactly the confluence dreamed
of by the chess players. One of them, Paul W. Glimcher, director of the Center
for Neuroeconomics at New York University and author of the standard textbook
in the field, wrote in a 2004 paper published inScience that
"economics, psychology, and neuroscience are converging today into a
single, unified discipline." Today he is more measured. "We are a
very young science," he says, "and we've taken more from economics
than we've given. I hope in the coming years you'll start to see us give more
back."
And economics does need some help,
according to a few practitioners like the eminent Yale University economist
Robert J. Shiller, who has argued that the discipline isn't doing just fine.
Most economic models didn't predict the 2008 housing crash, he pointed out in a
speech at last year's Society of Neuroscience meeting. Adding some
understanding of how the brain reacts to particular kinds of uncertainties or
ambiguities in supply and demand, he said, might avoid this and other costly
misfires.
Camerer, who was trained in economics—he
got an M.B.A. and a Ph.D. from the University of Chicago and "didn't know
anything about neuroscience until 2000"—says that assuming that economics
can't be improved by knowing how the brain computes value might be the most
unsound prediction of all. "That's really kind of a crazy bet," he
says.
Neuroscience and psychology could also do
with improvement, and that's where economics comes in, says Elizabeth A.
Phelps. "I was initially skeptical," says Phelps, a psychologist who
runs a lab at the NYU neuroeconomics center. "But the more I saw of the
mathematics and its ability to tease apart and model components of complex
behavior, the more I realized that psychology hadn't been very good at that.
Economics had ways to represent theories of behavior"—the brains of people
making certain choices will react in certain ways—"and this allowed us to
test those theories in a rigorous way."
Probably the easiest way to understand how neuroeconomics might contribute
to all these disciplines is to look at a few experiments. One recent study,
published this summer, searched for brain regions associated with altruism and
selfishness. Ernst Fehr, a professor of economics at the University of Zurich,
and one of the few economists working extensively with neuroscientists, asked a
group of 30 men and women to split a sum of money with another person or keep
more for themselves. While each person was making the decision, Fehr's team
took images of his or her brain in a functional-magnetic-resonance-imaging
machine. The fMRI scanner reveals fine details of brain anatomy and, crucially,
measures how active brain regions are. It has become a standard tool in this
field.
Those people who were willing to split
more money had more neurons in a region called the right temporo-parietal
junction, an area toward the back of the brain that has been linked to empathy.
Selfish people had a smaller junction. Moreover, the junction became more
active as unselfish people decided to give more money away, Fehr and his
colleagues found. It is almost as if the region worked hardest when people were
trying to overcome what might be a natural—and rational—impulse toward
selfishness.
Giving people ultimatums reveals more
detail about competition among brain regions that do different things.
Ultimatum games pit greed against justice, and neuroeconomists like to put
people in these dilemmas. Suppose your friend has $10, and she can split it
with you any way she wants. The catch is that if you reject her offer, you both
get nothing. If you are both rational, she will offer you a low amount, maybe
even $1. That way she gets to keep $9 if you accept, which you would certainly
do because $1 is better than nothing.
Of course, that's usually not what
happens. Low offers get rejected; there seems to be an impulse to punish
stinginess even at the expense of personal gain. Jonathan D. Cohen, a
neuroscientist at Princeton, went looking for the seat of that impulse. He
asked 19 people to play ultimatum games with stingy offers. Two areas of the
brain were active when people considered what to do. One, near the front of the
brain, is called the dorsolateral prefrontal cortex and is linked to deliberative
thought and calculation. The other, deeper in the brain, is tied to emotions
like disgust. It's called the insula. The stingier the offer, the more insula
activity Cohen's team saw. When people actually rejected the offer, this
activity peaked higher than did activity in the deliberative-thought area. It
appears, Cohen says, that two areas are competing in some way, and that
negative emotions—or the desire for justice—can trump people's rational desire
to get more.
Phelps, at NYU, has used another kind of
competition, bidding in an auction, to cast doubt on a standard economic and
psychological explanation for placing too much value on things: stocks, houses,
or products on late-night infomercials. That explanation usually centers on the
rush you get from success, or "the joy of winning." The psychologist,
whose office sits eight stories above an fMRI machine purchased specifically
for neuroeconomics and related studies, collaborated with an NYU economist,
Andrew Schotter, to show that winning may be the last thing on people's minds.
The researchers had 17 people lie in the
fMRI and play many rounds of a lottery, where winning was out of their control,
and join many auctions, in which they could control the outcome because they
had to bid against a partner. In the auctions, but not the lottery, people
showed exaggerated activity in the striatum, deep in the brain, which reacts to
unpleasant sensations as well as rewards. The more activity, the greater the
tendency to overbid.
This was a bit of a puzzle, Phelps says,
so she and her colleagues designed a refinement on the auction. Now people were
told they would be penalized $15 if they didn't win. At other times there was
no penalty. With the consequences of losing front and center, people
consistently bid much higher than they did in regular auctions. "It wasn't
the joy of winning that pushed them," says Phelps. "It seemed more
like fear of losing, because it only happened when we told them that losing at
the auction could cost them. It wasn't something that standard economic theory
would predict."
Michael L. Platt, director of the Duke Institute for Brain Sciences, has
taken neuroeconomics down to the genetics level. "We want to see if
tendencies to make certain decisions are not only the brain reacting to particular
situations, but also might be inherited," he says. He and his team have
collected data on 1,500 to 2,000 adults as they run through various
decision-making tasks. The scientists are analyzing the subjects' DNA for
variations in genes that produce neurotransmitters like dopamine and serotonin,
communications agents between many of the brain regions highlighted in the
other neuroeconomics experiments.
In monkeys, the genes do seem to make a
difference. Platt has been monitoring a colony of macaques that live on an
island off the coast of Puerto Rico. The animals are highly social, but some
are more so: Regardless of social status in the monkey group, some take actions
to put themselves at the center of things, while others hang back. The Duke
team has found that the more social ones have a different version of the gene
controlling serotonin function. And their offspring make the same choices and
have the same gene. "What we are seeing is that decision tendencies are
heritable," Platt says.
Those findings are not bulletproof. One
persistent critique of brain-scanning experiments is that while scans show
activity in a region, it's hard to tell if that activity is exciting or
inhibiting decision-related nerve impulses. So its exact role in a decision is
difficult to pin down. And while there are hints that the scans can predict
behavior, that hasn't been shown in a robust way. One study, by Gregory S.
Berns, a professor of economics at Emory University who was trained as a
psychiatrist, did show that brain activity in teenagers listening to specific
music foretold a small increase in national sales of particular albums. The
effect was limited but real, Dr. Berns notes.
Still, this early work has attracted a
fair amount of money. Making sense of seemingly irrational decisions has
implications for understanding why people do things that are bad for them, like
taking drugs or overeating. That has caught the attention of the National
Institutes of Health, which finances 21 current research projects with "neuroeconomics"
in their descriptions, to the tune of $7.6-million. The agency gives out many
more millions for other neurobiology work related to decision-making: Caltech
got $9-million this month to establish a center in this field. The National
Science Foundation has backed eight neuroeconomics projects with $3.5-million
in research money.
Much of the NIH money comes from its
institutes for drug addiction, mental health, and aging. "Most of us, to
get funding, have to sell our ideas along disease lines," says Phelps.
"Drug addiction is an obvious area where understanding reward-seeking
behavior is important, and our work is clearly related to that."
The NIH wants to know more about choices
because it's clear that many people understand what's needed to stay healthy
but choose not to do it, says Elisabeth Nielsen, chief of the branch of
individual and behavioral processes at the National Institute on Aging.
"We're very interested in decision-making and aging," she says.
"And that's not just health decisions but choices about insurance plans or
how to manage your retirement savings. Are changes in choices related to the
underlying neurophysiology? Or is it the environment? You won't know unless you
get input from different sciences, and that's what neuroeconomics brings to
us."
The money is only one measure of how far
the field has come. Universities such as NYU, Caltech, Duke, and Zurich have
added research centers in the field during recent years, and papers regularly
come out of a host of other institutions (see table). This fall Maastricht
University, in the Netherlands, inaugurated the first master's degree specific
to the field. And at the end of this month, when the Society for Neuroeconomics
holds its annual meeting, in Miami, the group will boast 247 members. It
started with 84 members in 2004. There will be a few broad-ranging
presentations—"A Neuroeconomic Theory of Self-Control"—and many
narrow ones—"Ventromedial prefrontal cortex and decisions to sustain delay
of gratification"—that delve deeply into the details of the brain.
"For us it's kind of a
sanctuary," says Caltech's Camerer. "There are no economists there
complaining that this isn't really economics. It's a very bottom-up
meeting."
Still, everyone knows those complaints
exist. "I do worry that economists have kind of dropped out of the
discussions," says Phelps. "This might become 'decision neuroscience'
rather than neuroeconomics."
An analysis of cross-citations by The
Chronicle and the Eigenfactor Project, at the University of
Washington, shows that the picture isn't all bleak. While journals in
neuroscience and economics were not citing each other at all in 1997, just
before the early neuroeconomics papers were published, by 2010 they were
talking back and forth.
But an analysis of mainstream economics
journals by Clement Levallois, a researcher at Erasmus University Rotterdam, in
the Netherlands, is more pessimistic. He found about 200 articles, published
over a recent 10-year period, that mentioned concepts in neuroscience or
biology. But the terms they focused on were concepts like "genetics,"
rarely anything strongly tied to neuroeconomics, like specific parts of
neuroanatomy that have been linked to decision-making, or words like
"dopamine."
The reluctance isn't surprising, says
Michael Woodford, a noted monetary theorist and professor of economics at
Columbia University. "Economics is a field where there is a core of ideas
developed during the 19th and 20th centuries that people agree are
important," he says. "If you want to argue that something should be
part of that core, the bar is going to be higher than in many other
fields." For neuroeconomics, he adds, "that's a promise that has yet
to be delivered on."
That's from someone who is beginning to
use neuroeconomics in his own research. Woodford studies how people rank
alternatives when making choices. So he has become very interested in
perception—what information the brain gets about those choices. "That's
the first step, happening before a decision is made," he says. "I'm
trying to build mathematics into models that accounts for variance in people's
perceptions." He's actually working on ways that backgrounds affect
perceptions of brightness, but the principle could apply to how some people
focus on the nicely sized bedrooms of a house that's for sale, for instance,
while others fixate on its tiny yard. "Standard economic theory treats
these things as anomalies, and we shrug it off. But what if we treated these as
phenomena that help make sense of these choices?"
The only way to find out, he says, is to
do it. And if it works, if a model of a mental process improves an economist's
ability to predict what people will do, "then I think neuroeconomics could
be very big."
Josh Fischman is a senior writer at The
Chronicle.
Correction (9/25/2012): This article was changed to clarify that Gregory Berns believes the predictive effects of brain scans are small but real, and has done experiments to demonstrate this.