Neuroeconomics is an interdisciplinary field that seeks to explain human decision making, the ability to process multiple alternatives and to choose an optimal course of action. It studies how economic behavior can shape our understanding of the brain, and how neuroscientific discoveries can constrain and guide models of economics.[1] It combines research methods from neuroscience, experimental and behavioral economics, and cognitive and social psychology. As research into decision-making behavior becomes increasingly computational, it has also incorporated new approaches from theoretical biology, computer science, and mathematics. Neuroeconomics studies decision making, by using a combination of tools from these fields so as to avoid the shortcomings that arise from a single perspective approach. In mainstream economics, expected utility (EU), and the concept of rational agents, are still being used. Many economic behaviors are not fully explained by these models, such as heuristics and framing.[2] Behavioral economics emerged to account for these anomalies by integrating social, cognitive, and emotional factors in understanding economic decisions. Neuroeconomics adds another layer by using neuroscientific methods in understanding the interplay between economic behavior and neural mechanisms. By using tools from various fields, some scholars claim that neuroeconomics offers a more integrative way of understanding decision making.[1]



Major research areas in neuroeconomics

Decision making under risk and uncertainty

Most of our decisions are made under some conditions of risk. Decision sciences such as psychology and economics usually define risk as the uncertainty about several possible outcomes when the probability of each is known.[3] 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.[2] Research and experience uncovered a wide range of expected utility anomalies and common patterns of behavior that are inconsistent with the principle of utility maximization. For example, the human tendency to be risk-averse or risk-seeking. Also, the tendency to overweight small probabilities and underweight large ones. Kahneman and Tversky proposed the prospect theory to encompass these observations and offers an alternative model.[2] Risk preference is a central concept in decision sciences, and a useful way for exploring decision making under risk and uncertainty. Neurons participating in the decision process are sensitive to subjective risk preferences, even when available options have the same objective value. Studying this can help in dissociating the subjective value that people assign to uncertain risky events from the objective value. The neural mechanisms underlying the concept of risk preference are not fully examined.[1] This issue is the main goal of this line of research in neuroeconomics which uses neuroimaging technique to identify regions of the brain implicated in decision making under risk and uncertainty. The insular cortex has been shown to activate in decisions involving high risk and uncertainty.[4] Other areas such as the ventromedial prefrontal cortex,[5] and the inferior frontal gyrus[6] [7] have also been shown to activate when engaging in decisions that involve risk.

Intertemporal choice

In addition to risk preference, another central concept in economics is intertemporal choices which are decisions that involve costs and benefits that are distributed over time. Intertemporal choice research studies the expected utility that humans assign to events occurring at different times. The dominant model in economics which explains it is discounted utility (DU). DU assumes that humans have consistent time preference and will assign value to events regardless of when they occur. Similar to EU in explaining risky decision making, DU is inadequate in explaining intertemporal choice.[2] For example, DU assumes that people who value a bar of candy today more than 2 bars tomorrow, will also value 1 bar received 100 days from now more than 2 bars received after 101 days. There is strong evidence against this last part in both humans and animals, and hyperbolic discounting has been proposed as an alternative model. Under this model, valuations fall very rapidly for small delay periods, but then fall slowly for longer delay periods. This better explains why most people who would choose 1 candy bar now over 2 candy bars tomorrow, would, in fact, choose 2 candy bars received after 101 days rather than the 1 candy bar received after 100 days which EU assumes.[2] Neuroeconomic research on intertemporal choice focuses on whether this behavior can be better explained by the interaction of multiple systems. The central debate is on the role of the limbic system in intertemporal choice. The limbic system refers to the medial and orbital regions of frontal cortex, the amygdala, the insular cortex, and their subcortical counterparts, and is thought to be critical to emotional processing. Evidence has been found to support the response of these structures to both immediate and delayed rewards .[2] The extent to which intertemporal choice is generated by multiple systems, such as the limbic system, with conflicting priorities is a debated issue within neuroeconomics, and remains an area of active research.[2]

Social decision making

Social situations offer a useful way for understanding more complex forms of decisions, which may better approximate many of our real-life choices.[8] The research on social decision making in neuroeconomics aims to answer the question of what do our brains choose to focus on when faced with a social situation. Understanding the neural mechanisms underlying social decision making is the central focus of this line of research.[1] Neuroeconomics uses various tools in examining social decision making. From economics, it uses the models and tasks of game theory which attempts to mathematically capture behavior in strategic situations in which an individual's success in making choices depends on the choices of others. Psychological findings and tools from cognitive psychology and social psychology are also used. Finally, imaging techniques from neuroscience are used to observe neural activity in different brain structures. By integrating various tools and fields, theoretical models of how we make decisions in a rich, interactive environment can be advanced.[8]


Behavioral economics experiments record the subject's decision over various design parameters and use the data to generate formal models that predict performance. Neuroeconomics extends this approach by adding observation of the nervous system to the set of explanatory variables. The goal of neuroeconomics is to inform the creation and contribute another layer of data to the testable hypotheses of these models[citation needed].

Neural recording techniques

In neuroeconomic experiments, brain scans can be performed using fMRI, PET or other functional neuroimaging tools in order to compare the roles of the different brain areas that contribute to economic decision-making.[9] Other experiments measure ERP (event-related potentials, or use EEG) and MEG (magnetoencephalograms) to measure the timecourses of different brain events.[9] Direct recordings of neuronal activity and neurotransmitter concentrations in monkeys and in humans can also be carried out.

In addition, knowledge of brain activity can invite causal experiments in which choices are actually influenced by exogeneous causal manipulations. (This is important from the point of view of standard economic theory, because in standard theory choices only change when preferences, income, prices, or information change; so any other variable which influences choice must be interpreted in those terms.) For example, TMS (transcranial magnetic stimulation), lesions to brain areas ("the lesion method"), pharmacological interventions, and simpler exogeneous variations like cognitive load and priming can all potentially influence choices.


In a typical behavioral economics experiment, a subject is asked to make a series of economic decisions. For example, a subject may be asked whether they prefer to have 45 cents or a gamble with a 50% chance of one dollar and 50% chance of nothing. The experimenter will then measure different variables in order to determine what is going on in the subject's brain as they make the decision. Some authors have demonstrated that Neuroeconomics' tools may be useful not only to describe experiments involving rewarding but may also be applied in order to describe the psychological behavior of common psychiatric syndromes involving addiction as well as delusion. (Download)

Neuroeconomic Programs

Neuroeconomics has developed into an up and coming field in graduate studies. Several universities are conducting direct research on the field, such as MIT, New York University, Duke University, and George Mason University.[10][11] Furthermore, some programs actually offer a degree in Neuroeconomics. Claremont Graduate University is the first institution to offer a PhD in Neuroeconomics; it is ranked by Aashish Shah, a business school undergraduate, as one of the best Neuroeconomics institutes in the United States.[12] Caltech now (c 2007) has a Behavioral and Social Neuroscience (BSN) PhD in either CNS or HSS,[13] mixing economic theory, neurobiology, computational neuroscience, dynamic causal modeling and neuroscientific techniques. It is also an active research center. From 2010 onwards, the Department of Economics at the University of Zurich in Zurich/Switzerland offers a degree-awarding PhD program in Neuroeconomics. [14] Students in this program take dedicated neuroeconomics courses and conduct research within the research groups at the Department's Laboratory for Social and Neural Systems Research (SNS-Lab).[15] A fairly complete listing can be found on the Society for Neuroeconomics Website.[16]


Different experts have criticized the emerging field. Example of critics have been that it is "a field that oversells itself";[17] or that neuroeconomic studies "misunderstand and underestimate traditional economic models".[18]


Neuromarketing is a distinct discipline closely related to neuroeconomics. While neuroeconomics has more academic aims, since it studies the basic mechanisms of decision-making, neuromarketing is an applied field which uses neuroimaging tools for market investigations.[19][20]

See also


  1. ^ a b c d Center for Neuroeconomics Study at Duke University
  2. ^ a b c d e f g Loewenstein,G., Rick,S., & Cohen, J. (2008). Neuroeconomics. Annual Reviews. 59: 647-672. Retrieved from:
  3. ^ Mohr, M.,Biele, G.,& Hauke, R. (2010). Neural Processing of Risk. e Journal of Neuroscience, May 12, 2010, 30(19):6613-6619. Retrieved from:
  4. ^ Paulus, M., Rogalsky,C., Simmons, A., Feinstein, J., & Stein, M. (21 April 2003). Increased activation in the right insula during risk-taking decision making is related to harm avoidance and neuroticism. NeuroImage 19,1439–1448.
  5. ^ Clark,L. , Bechara, A., Damasio, H., Aitken, M., Sahakian, B., & Robbins, T. (April 3, 2008).Differential effects of insular and ventromedial prefrontal cortex lesions on risky decision-making. BRAIN, 131 (5). Retrieved from:
  6. ^ Christopoulos GI, Tobler pn. Bossaerts, P, Dolan RK, Schultz W (2010) Neural correlates of value, risk and risk aversion contributing to decision making under risk. Journal of Neuroscience, Oct 7, 2009, 29(40):12574-12583.Retrieved from
  7. ^ Cox, C., Gotimer, K., Roy, A., Castellanos, X., Milham, M., & Kelly, C. (August 19, 2010). Your Resting Brain CAREs about Your Risky Behavior. PLoS ONE, 5(8). Retrieved from
  8. ^ a b Sanfey,A. (2007). Social Decision-Making: Insights from Game Theory and Neuroscience. Science , 318, 5850. Retrieved from:
  9. ^ a b Kenning P, Plassmann H (November 2005). "Neuroeconomics: an overview from an economic perspective". Brain Res. Bull. 67 (5): 343–54. doi:10.1016/j.brainresbull.2005.07.006. PMID 16216680. 
  10. ^ Neuroeconomics The MIT Neuroeconomics Center
  11. ^ Neuroeconomics
  12. ^ Here is a Review of Neuroeconomic Programs in the United States
  13. ^ "Caltech: Humanities and Social Sciences". 2010-01-29. Retrieved 2010-07-28. 
  14. ^
  15. ^
  16. ^ Society for Neuroeconomics
  17. ^ Rubinstein, Ariel (2006). "Discussion of "behavioral economics": "Behavioral economics" (Colin Camerer) and "Incentives and self-control" (Ted O'Donoghue and Matthew Rabin)". In Persson, Torsten; Blundell, Richard; Newey, Whitney K.. Advances in economics and econometrics: theory and applications, ninth World Congress. Cambridge, UK: Cambridge University Press. ISBN 0-521-87153-0. Retrieved 2010-01-01. 
  18. ^ Gul, Faruk; Pesendorfer, Wolfgang (2008). "A Case for Mindless Economics". In Schotter, Andrew; Caplin, Andrew. The Foundations of Positive and Normative Economics: A Handbook (Handbooks in Economic Methodologies). Oxford University Press, USA. pp. 3–42. ISBN 0-19-532831-0. Retrieved 2009-03-04. 
  19. ^ Paul W. Glimcher (2008). "Neuroeconomics - Scholarpedia". 3(10):1759, revision #50592. Retrieved 2009-03-04. 
  20. ^ Lee N, Broderick AJ, Chamberlain L (February 2007). "What is "neuromarketing"? A discussion and agenda for future research". Int J Psychophysiol 63 (2): 199–204. doi:10.1016/j.ijpsycho.2006.03.007. PMID 16769143. 

Further reading


Journal of Neuroscience, Psychology, and Economics

External links

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