Thursday, January 27, 2011

299: Neuroeconomics

Take a deep breath and read the following:

A general function of neural tissue is ongoing economic evaluation, a central function for any system that must operate with limited resources, that is, all mobile creatures.

All mobile creatures run on batteries; they must continually acquire nutrients and expel wastes in order to reproduce and survive.

Consequently, the way that mobile creatures value their internal states, sensory experience, and behavioral output influences directly how they will invest their time and energy.

Our perspective is focused. By economic evaluation, we refer to the problems that an individual nervous system faces when making rapid, moment-to-moment decisions possessing real costs and potential future payoffs (good and bad).
- end quote

Comes from the article "Neural Economics and the Biological Review Substrates of Valuation" Neuron, Vol. 36, 265–284, October 10, 2002 by P. Read Montague and Gregory S. Berns

This is the way how a neuroscientist tells us , that we are continuously involved in decision-making and calculating the risks involved, when we make a decision.

Economics is of course THE area of continuous decision-making which is important for our survival and prosperity. Thence, people have pondered about the question "How does this decision-making work?"

If we know how it works, we can predict the decisions people will make, if we know all parameters. And we could make better decisions ourselves.

Utility maximization, first proposed by Daniel Bernoulli in 1738, is used to explain decision making under risk. The theory assumes that humans are rational and will assess options based on the expected utility they will gain from each.

That is a bit how we see us in economics, or at least in economic models: as calculating, selfish and rational beings.

In "The Theory of Moral Sentiments" (1759) Adam Smith add passions to this picture. In our decision-making we are driven by emotions and beliefs and passions.

In 1937 the American economist Paul Samuelson published the article "Foundations of Economics" in which he asks for a clear and simple theory of human behavior in economics.

And there he is : the Homo Economicus. He inhabited the models, used to describe and predict economic developments with his growing rationality.

Not only were all people rational, was the idea, they also know that all others are rational too and they also know that all others know this too. Rational and selfish…

To a certain extend this model works in macro-economic theories, but people do weird things, things that do not fit this model. Thence neuroeconomics. Let's look what is going on inside those heads when decision-making takes place.

An experiment: 2 persons… gets 10 dollar and the instruction to give some to the other, at least one dollar. The 'receiver' has two options: accept whatever he gets or say 'NO" if the amount is too low. In the later case nobody gets the money.

If you are rational and selfish as receiver, everything you get for free is a profit, isn't it? And you expect that the smart "giver" will only offer ONE dollar.

But that is not how it worked out with humans. In general the "giver" offered the "receiver" about 5 dollars. The only group that acted consistently like the homo economicus was autistic people, who lack the understanding of emotions in others.

What neuroeconomists at least have discovered is what we already have learnt from Joshua Greene's findings. Like Plato already suggested: The mind is like a charioteer, whose chariot is pulled by two horses: ratio and feelings.

The metaphore needs only one small modification, as a neuroeconomist said: the ratio is a pony and the feelings are an elephant.

In other words, it has shown that in the process of decision-making our brain become a battlefield where two parties fight for control, the prefrontal cortex against the rest :-)

The Discussion

[13:25] herman Bergson: Thank you....:-)
[13:25] herman Bergson: If you have a remark or question, the floor is yours
[13:25] Mick Nerido: Economics can't be called a science then?
[13:26] herman Bergson: ooohhhh....
[13:26] herman Bergson: As we have seen economics is a lot of psychology....
[13:26] herman Bergson: And it depends on your definition of science....
[13:26] Anja Tigerfish: yes
[13:26] Bejiita Imako: ah
[13:26] herman Bergson: I think we have two...
[13:27] Mick Nerido: Can outcomes be predicted?
[13:27] herman Bergson: The physics approach and the statistical approach
[13:27] herman Bergson: Economics is a statistical science...
[13:27] herman Bergson: So predictions are statistical guesses I would say
[13:28] Mick Nerido: If we had computer running the economy would it be more rational?
[13:29] Bejiita Imako: well people must first program that computer
[13:29] herman Bergson: Interesting question.......
[13:29] herman Bergson: I dont think so....
[13:29] Bejiita Imako: cause its just a machine
[13:29] Bejiita Imako: that can only do what we tell ot how to and what to do
[13:29] herman Bergson: As Adam Smith already observed....our decisions are driven by passion
[13:29] herman Bergson: We have drives,tastes, fears, hopes.....
[13:30] Mick Nerido: Computer have no feelings or passion
[13:30] herman Bergson: Those count in the economic world
[13:30] Ciska Riverstone: Mick - they have no needs- why should they need an economy?
[13:30] herman Bergson: Just look how stock exchange operates..
[13:30] herman Bergson: complete irrationality...
[13:31] Mick Nerido: Funny that it is so..
[13:31] herman Bergson: Well.....the greed crisis wasn't that funny at all :-)
[13:31] Mick Nerido: lol
[13:31] Paula Dix: Mind isnt only one thing? rational and emotional arent really working together?
[13:31] Bejiita Imako: hehe
[13:31] herman Bergson: No Paula....
[13:32] Paula Dix: so we have more than one mind?
[13:32] herman Bergson: Evolutionary the "emotional" part of the brain is older than the cortex...
[13:32] herman Bergson: So first there are the emotional responses....fear, hope etc...
[13:33] Paula Dix: i see, then dennet is right on that text about mind being imaginary
[13:33] herman Bergson: The the prefrontal cortex kicks in and tries to control the situation
[13:33] Aristotle von Doobie (aristotlevon.doobie): :) we are exactly two folks in one
[13:33] Paula Dix: lol
[13:33] herman Bergson: By reducing the emotional part for instance...
[13:33] herman Bergson: That is why there can be panics in the stock exchange...
[13:34] herman Bergson: Rationally people say...ok no drama here....
[13:34] herman Bergson: But the emotions yell PANIC....Black Monday....Let's sell all shares of company X
[13:35] herman Bergson: and then it is a matter of who wins ^_^
[13:35] herman Bergson: In fact an enormously complex process
[13:35] Cain Levasseur: Asian Crisis a few years ago also started from fear
[13:35] herman Bergson: Well...there you have the example
[13:36] Aristotle von Doobie (aristotlevon.doobie): Panic certainly isn't rational, a prime example of our cerbral selves not harnessing our primal self
[13:36] herman Bergson: Yes indeed Aristotle....and our rationality is in another part of the brain...
[13:36] Aristotle von Doobie (aristotlevon.doobie): "The Monster is out"
[13:36] Mick Nerido: Everyone can't win in the stock market
[13:36] herman Bergson: In a way ...yes ^_^
[13:36] Paula Dix: but what part decides what of these parts will win?
[13:37] herman Bergson: Good question Paula ^_^
[13:37] herman Bergson: You get the inclination to put in a your head....
[13:37] herman Bergson: The one who decides who wins...
[13:38] Marli Hax: okay then, I am sorry to leave you now, but I have to go off to bed now
[13:38] herman Bergson: Limbic system or prefrontal cortex :-)
[13:38] Marli Hax: it was a great reading herman, thank you
[13:38] herman Bergson: Sweet dreams Marli
[13:38] Bejiita Imako: ok night Marli
[13:38] Paula Dix: bye marli
[13:38] Aristotle von Doobie (aristotlevon.doobie): yes, my question is who and where is the referee?
[13:38] Ciska Riverstone: Bye Marli
[13:38] :: Beertje :: (beertje.beaumont): good night marli
[13:38] Marli Hax: good night all
[13:38] Anja Tigerfish: have honey sweet dreams Marli
[13:38] herman Bergson: And here we touch on the philophy of mind
[13:39] herman Bergson: Yeah she is still so small....
[13:39] herman Bergson: To continue on your question Paula
[13:40] herman Bergson: I dont think neuroscientists KNOW who wins and why....
[13:40] herman Bergson: They observe that one of the two wins to put it simple...
[13:40] Paula Dix: makes sense :))
[13:40] Bejiita Imako: ok
[13:40] herman Bergson: The wireing of the brain is soooooo complex...
[13:41] Paula Dix: yes, certainly not an yes/no decision...
[13:41] herman Bergson: Left aside that not two brains are the same
[13:41] herman Bergson: No....not at all, I think
[13:41] Aristotle von Doobie (aristotlevon.doobie): Succeeding generations have to be the winners
[13:41] Cain Levasseur: and i think that to get an answer we cant only look the biological side of the problem
[13:42] Cain Levasseur: there are also cultural factors, material factors, etc.
[13:42] herman Bergson: Yes all is involved in such problems...
[13:42] herman Bergson: education, personal history...etc.
[13:42] Paula Dix: yes, many brain parts evaluating many things at the same time
[13:42] Cain Levasseur: right
[13:43] herman Bergson: exactly paula.....
[13:43] herman Bergson: And we are now at the level of observing it happen...
[13:43] herman Bergson: We only have correlations between brain events and behavior for instance...
[13:44] herman Bergson: How to interpret the relation between brain states and mental states is still a philosophical issue
[13:44] Mick Nerido: Its like perception all of us see things differently
[13:44] Aristotle von Doobie (aristotlevon.doobie): whoever survives the battle between rational and instinct will procreate and improve the species
[13:44] herman Bergson: Well Aristotle.....
[13:45] herman Bergson: That is a sound you hear among neuroscientists....
[13:45] herman Bergson: Understanding the brain will lead to a better understanding of ourselves and our behavior
[13:46] Mick Nerido: Cloning will allow one kind of brain to take over
[13:46] herman Bergson: Theoretically yes Mick...
[13:46] herman Bergson: But we KNOW for sure what will happen then...
[13:46] herman Bergson: We have patients with brain damage....
[13:47] herman Bergson: Where either the rational part of the emotional part is damaged...
[13:47] herman Bergson: These people cant live a normal life...
[13:47] herman Bergson: They are fundamentally handicapped
[13:47] Aristotle von Doobie (aristotlevon.doobie): one can cook a nice looking pudding, it is in the tasting (practical application) which will determine how well the neuroscientists can cook
[13:48] Mick Nerido: what about left and right brain control
[13:48] herman Bergson: That is a nice picture of the brain....
[13:48] herman Bergson: and very general..
[13:49] herman Bergson: The brain has a great plasticity...
[13:49] herman Bergson: So in general this picture behind me is ok....
[13:50] herman Bergson: but as I two brains are alike
[13:50] Bejiita Imako: correct
[13:50] herman Bergson: We are still at the beginning of the 5th revolution.....
[13:51] herman Bergson: Understanding the brain and ourselves...
[13:51] Cain Levasseur: ¿what do you mean by 5th revolution?
[13:51] herman Bergson: started in the last decade...about 2001 or so
[13:51] herman Bergson: It is in the first lecture on this project...
[13:52] Mick Nerido: 2nd life is like a big brain
[13:52] herman Bergson: Our view of our selves is revolutionarized....thrown over several times
[13:52] Anja Tigerfish: *-*rOfl*-*
[13:52] Anja Tigerfish: *-*r0fl*-*
[13:52] Bejiita Imako: hehee
[13:52] Bejiita Imako: well lot of peoples minds in here
[13:52] Bejiita Imako: ㋡
[13:52] Anja Tigerfish: ㋡
[13:53] herman Bergson: Yes we are only minds :-)
[13:53] Bejiita Imako: ㋡
[13:53] Anja Tigerfish: cool
[13:53] Mick Nerido: very true
[13:53] Bejiita Imako: yes
[13:53] herman Bergson: Well If you don't mind....
[13:53] Mick Nerido: mind over matter
[13:53] herman Bergson: I would like to thank you for your participation....
[13:53] Aristotle von Doobie (aristotlevon.doobie): the coldness of rationality and the heat of passion should mix into a lovely warmth
[13:54] Bejiita Imako: really interesting ㋡
[13:54] Cain Levasseur: Thank you
[13:54] Bejiita Imako: ok all have to move on
[13:54] herman Bergson: poetic Aristotle
[13:54] Bejiita Imako: a rez party to attend
[13:54] Mick Nerido: Yes great lecture
[13:54] Bejiita Imako: cu soon again ㋡
[13:54] herman Bergson: Thank you all
[13:54] Ciska Riverstone: interesting as always - thank you Herman
[13:54] herman Bergson: Class dismissed :-)
[13:54] Bejiita Imako: Hooo!!!
[13:54] Bejiita Imako: Hoooo!
[13:54] Bejiita Imako: cu
[13:54] Aristotle von Doobie (aristotlevon.doobie): Thank you Professor :) stimulating as always
[13:54] Paula Dix: great! :))
[13:54] :: Beertje :: (beertje.beaumont): thank you Herman it's very interesting
[13:55] Anja Tigerfish: *^*^*^*^* Anja thinks that's *^*^*^*^*
[13:55] Anja Tigerfish: SuperCrazyFunnyFantasticBombasticCooool

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