[Nettime-bold] neuroeconomics, or, bourgeois nature

["McKenzie Wark" <mckenziewark@hotmail.com>]

New York Times. February 27, 2003


Looking Inside the Brains of the Stingy
By VIRGINIA POSTREL

Here's a game economists play: Player 1 has $10 and
can give any dollar amount to Player 2. Player 2 can
either accept or reject it. If Player 2 accepts, they both
keep the money. If Player 2 rejects it, neither player
gets anything.

What should the players do? Arguably, Player 2 should
accept whatever is offered, since some money is better
than none. Player 1 should thus offer as little as
possible: $1. That strategy is the standard game-theory
equilibrium.

But that's not necessarily what happens when real
people play this "ultimatum game" in laboratory settings
with real money on the line. Faced with low-ball offers,
many Player 2's reject them. And many Player 1's
make more generous offers, often nearly half the
money.

"About half the subjects that we observed played
according to the way the game theory said people
should play, and about half didn't," said Kevin
McCabe, an economist and director of the Behavioral
and Neuroeconomics Laboratory at George Mason
University.

The Player 1's who do not follow the presumably
rational strategy often wind up better off. Even without
communicating with fellow players, they are able to
cooperate for mutual benefit.

Why do people react differently to the same situation?
And why do so many people give up money to punish
anonymous cheapskates?

Experimental economists have mapped out these
anomalies and tested how much they affect economic
interactions. Now a new field, called neuroeconomics,
is using the tools of neuroscience to find the underlying
biological mechanisms that lead people to act, or not
act, according to economic theory.

In neuroeconomics, volunteers go through exercises
developed by experimental economists studying trust or
risk. Instead of simply observing subjects' behavior,
however, researchers use imaging technologies, like
M.R.I.'s, to see which brain areas are active during the
experiment.

Researchers at Princeton, for instance, have found that
receiving low-ball offers stimulates the part of the brain
associated with disgust. "They can predict with good
reliability, from looking at the brain, what a person will
do," said Colin F. Camerer, an economist at the
California Institute of Technology. "People whose
brains are showing lots of disgust will reject offers."

Professor Camerer says looking inside the brain's
"black box" is like looking inside a company.
Traditionally, economists treated a company as a
largely automatic "production function" that turns labor,
capital and resources into output. Over the last several
decades, however, many economists have turned their
attention to understanding companies' internal
workings. Most prominently, "agency theory" examines
how companies can be governed to encourage
employees (the "agents") to pursue the goals of the
owners, rather than their personal agendas.

This research hasn't replaced the production-function
approach, but it has enriched economists'
understanding of company behavior. Neuroeconomists
want to do something similar for how individuals make
economic choices.

"Neuroeconomics could be to consumer theory what
agency theory is to the production-function approach,"
Professor Camerer said.

While many economists remain skeptical,
neuroscientists have welcomed the interest.

"Anyone working with the brain likes this approach
because economists have these nicely defined
behavioral models," said Paul Zak, an economist and
director of the Center for Neuroeconomics Studies at
Claremont Graduate University.

Neuroscientists do experiments like looking at which
parts of the brain are active when someone looks at
photographs and decides which faces are trustworthy.
Neuroeconomists don't just ask people to use their
imaginations, though — they have subjects play
laboratory games to find out what happens in real
interactions.

Professor Zak and his colleagues study trust with a
variation of the ultimatum game. Each player receives
$10. Player 1 gets an additional $10. Players interact
anonymously over computers. Player 1 can send any
whole-dollar amount to Player 2. Whatever he sends is
tripled, so a $5 gift turns into $15. Finally, Player 2 can
return some of the money to Player 1.

If Player 1 expects Player 2 not to send any money in
return, Player 1 will keep the initial stake. That's the
game's standard equilibrium.

"In fact," Professor Zak said, "most people send about
half of their stake to Player 2. They're signaling that
they want to trust them." In response, about 75 percent
of the Player 2's return some money, making both
better off.

"Even though we can't see each other and we don't
know each other, we understand the other person as a
human being," Professor Zak said. Extrapolating from
animal results, he hypothesized that the hormone
oxytocin, which is associated with social bonding, might
play a role.

"When you read the studies on lower mammals," he
said, "everything suggests that this is a candidate to
induce trustworthiness because it's something that you
would not consciously be aware of and yet it would
influence decision making."

Researchers tested each subject's blood for eight
different hormones right after the person made the
decision about whether to send money. For Player 1,
no hormone appeared to make a difference. But the
more money the Player 2's received, the higher their
oxytocin, even after controlling for factors like age, sex
and menstrual cycle timing. The higher the oxytocin, the
more money each Player 2 returned.

That response didn't correlate with various personality
measures. "It's not that these people who returned
more money are just nicer," Professor Zak said.

Neuroeconomists caution that their research is just
starting. But that does not reduce their enthusiasm.

"For me, it's just an extremely exciting area in terms of
potential," Professor McCabe said. "There's always
new findings every day."

http://www.nytimes.com/2003/02/27/business/27SCEN.html



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