Using neuroeconomics in economics
An article by Josh Fischman in the Chronicle suggests that economists have been slow to take up the insights of neuroeconomics.
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 in Science 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.
The slow take-up of neuroeconomics in the short-term by the broader economics profession is not a bad thing. Neuroeconomics is often seeking to build on and test findings from behavioural economics, but the findings from neuroeconomics are not yet fundamentally changing the understanding of human behaviour that behavioural economics gives us. Take the first example used Fischman:
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.
The finding is interesting, but how would an economist incorporate this into their understanding of human action beyond that already provided by behavioural economics? The concept of competing brain structures in decision-making is common in psychology and evolutionary biology - or even economics. Pinning down a location in the brain (and trying to give it an interpretation) is not substantively changing this.
In some ways, neuroeconomics is in a similar state of development as genoeconomics, the use of molecular biology in economics (also referred to in Fischman’s article). Genoeconomics is seeking to build on the understanding of human behaviour that we can get from evolutionary biology. But genoeconomics is at such an early stage that it is not fundamentally changing this understanding. An economist seeking to incorporate evolutionary biology into their economic thinking can use evolutionary theory, twin studies and anthropological studies, after which they will gain limited additional understanding from genoeconomics.
However, this points to the real problem. The areas that neuroeconomics and genoeconomics are building on, behavioural economics and evolutionary biology, could and should be used to a greater extent in economics. Economists don’t need to wait for more information on which region of the brain or which gene underlies a behaviour before incorporating it into a model. Behavioural economics is a mature field (albeit one lacking a framework - that evolutionary biology will one day offer) and our knowledge of human evolution and the heritability of traits gives great scope for evolutionary biology to be used.
Having said this, we should not ignore neuroeconomics and genoeconomics. The findings being developed today have value. I wish more research was being conducted in these areas and that economists were more involved. Colin Camerer notes the lack of economists involved in this research:
“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.” …
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.
It is just this research is not at a point where it can revolutionise economic theory in the way its more developed relations can. Of course, this will change over the next decade as neuroeconomics and genoeconomics mature and researchers develop causative explanations that add to our knowledge of human behaviour. At that point, the complaints about the failure to adopt neuroeconomics and genoeconomics will have substance. Until then, the lack of evolutionary biology and behavioural economics in the practice of most economics is the bigger issue.