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September 13th, 2006, 10:51 AM
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Member
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Join Date: Jul 2004
Posts: 174
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New Yorker: Neuroeconomics (Mind Games)
The New Yorker published a pretty good introductory article on Neuroeconomics, a budding field studying how economic behavior works in terms of the brain.
MIND GAMES, "What neuroeconomics tells us about money and the brain,"
by JOHN CASSIDY
Some representative snippets:
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“We were reading the neuroscience, and it just seemed obvious that there were applications to economics, both in terms of ideas and methods,†said George Loewenstein, an economist and psychologist at Carnegie Mellon who read Damasio’s and LeDoux’s books. “The idea that you can look inside the brain and see what is happening is just so intensely exciting.â€
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Economics has always been concerned with social policy. Adam Smith published “The Wealth of Nations,†in 1776, to counter what he viewed as the dangerous spread of mercantilism; John Maynard Keynes wrote “The General Theory of Employment, Interest, and Money†(1936) in part to provide intellectual support for increased government spending during recessions; Milton Friedman’s “Capitalism and Freedom,†which appeared in 1962, was a free-market manifesto. Today, most economists agree that, left alone, people will act in their own best interest, and that the market will coördinate their actions to produce outcomes beneficial to all.
Neuroeconomics potentially challenges both parts of this argument. If emotional responses often trump reason, there can be no presumption that people act in their own best interest. And if markets reflect the decisions that people make when their limbic structures are particularly active, there is little reason to suppose that market outcomes can’t be improved upon.
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In the past few years, dozens of papers on neuroeconomics have been published, and the field has attracted some of the most talented young economists, including David Laibson, a forty-year-old Harvard professor who is an expert in consumer behavior. “Natural science has moved ahead by studying progressively smaller units,†Laibson told me. “Physicists started out studying the stars, then they looked at objects, molecules, atoms, subatomic particles, and so on. My sense is that economics is going to follow the same path. Forty years ago, it was mainly about large-scale phenomena, like inflation and unemployment. More recently, there has been a lot of focus on individual decision-making. I think the time has now come to go beyond the individual and look at the inputs to individual decision-making. That is what we do in neuroeconomics.â€
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kind regards,
Todd
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