Friday, September 15, 2006
The Mind Games of Neuroeconomics
The Sept. 18 issue of the The New Yorker has an engaging article by John Cassidy that reviews collaborative work by economists and neuroscientists studying how multiple systems in the brain balance competitions between emotion and reason in making economic decisions. By now a substantial list of irrational economic behaviors have been documented that frequently make the rational Homo economicus of mathematical economics irrelevant. The rational-actor framework doesn't fit with stock-market bubbles, drug addiction, and compulsive shopping. Behavorial economists now examine brain activity during risk aversion scenarios, trust in fairness games, choosing between immediate and delayed rewards. One concept that has emerged is "asymmetric paternalism" a new political philosophy based on the idea of saving people from the vagaries of their limbic regions. One example would be retirement planning. Because company 401(k) retirement plans are often optional, many people fail to join them. The lure of spending money on short term goals is too great, even given the greater longer term return of money put in a retirement plan. In companies that automatically include their employees in such a plan unless they opt out, enrollment rates are sharply higher.