Neuroeconomics, An Article And A Blog

Neuroeconomics is a growing field, and is starting to get some attention outside of academia. See, for example, this Financial Times article from Tuesday on neuroeconomics research. They start by discussing trust games, and why researchers want to dig more deeply into some of the results that have come from laboratory experiments.

Prof [Vernon] Smith suggests that many people have formed a habit of making reciprocal exchanges: “People come in off the street and they are accustomed to trading favours. If they unconsciously pick up on the fact that they’ve been done a favour, the implicit question is: Are you going to return the favour or screw me over?”

The idea is plausible, but it is not easy to test. So during the games, Prof Smith’s team scanned players’ brains using functional magnetic resonance imaging. The FMRI scan showed that players who co-operated were using parts of their brain called Brodman’s areas 8 and 10. These areas had previously been associated with thinking about the mental activities and the motivations of others, and of delaying gratification to receive higher rewards later. Non-cooperative players did not use these parts of the brain, and neither did those who knew they were playing against computers instead of human opponents.

This, argues Prof Smith, is consistent with the reciprocity explanation: players are thinking about the likely responses of other players and deciding to trust them.

One of the pioneers of neuroeconomic research, particularly into trust relationships, is Kevin McCabe, professor of economics and law at George Mason University and the Interdisciplinary Center for Economic Science. One of my favorite findings of Kevin’s is that when we compete, different neurological pathways are active depending on whether or not we are competing against another human or against a computer. This finding is totally consistent with my playing Cribbage on my Palm — I don’t pay as much attention to the hands that my opponent has, or to other details of the game that I do pay attention to when playing against a human. Kevin tells me that this distinction is common.

Kevin has also started a Neuroeconomics weblog, and his first few posts give a good background to what this line of research is about and its potential. Do go visit him!

Another researcher whose research is profiled in the FT article is Paul Zak at Claremont Graduate University. Paul’s research looks at hormonal connections to exchange behavior, including trust.

Professor Paul Zak of Claremont University has run trust games similar to those used by Vernon Smith. But Prof Zak has been testing hormone levels, looking for evidence of a “trust hormone”, levels of which vary according to how far the experimental subjects decide to co-operate with their counterparties. He has found one candidate: levels of the hormone oxytocin rise in players who receive and return money. Oxytocin is primarily a reproductive hormone responsible for, among other things, lactation. But it can be stimulated by eating, massage, sex and, says Prof Zak, by social signals such as being trusted.

Thanks to Tyler Cowen for the pointer.