Neuroeconomics: Give it a chance or run and hide?

[SlowLearner38]

As most of us know, it is often much more difficult to prove something is true than it is to prove it is false. For social scientists, it is arguably impossible to prove anything to be true. However, with the use of medical technology, can social scientists prove things to be false?

 

Someone once very elegantly explained to me why the field of neuroeconomics is worthwhile and, well, it made a heck of a lot of sense. Though it is possible that some people may go completely nuts with the field and try to do too much, the initial value of neuroeconomics could come from its ability to dismiss some of the crappy ideas from behavioral economics. What do I mean? Lets say you've been running experiments for months and you are so convinced that you have the new/hottest behavioral idea because your results are showing exactly what your "theory" says. Well, what if we replicated the experiments, but this time use a simple brain monitoring system to see if there was actually any activity in the brain when these supposed rational/irrational decisions were made. Simply put, if your neurons weren't firing, you never did any sort of cognitive process to decide, say, which investment to pick. You just picked it, thus making any studies about why you picked it completely worthless.

 

So what do you think? Based on the approach I described above, do you think the field of neuroeconomics has real value? The biggest skepticism that I can relate with is that, similar to the debates between field vs. lab experiments, are decision processes made during an MRI significantly different than ones made under normal conditions?

 

I think the field is worthwhile, so long as we are cautious with the approach.

[chisquared]

You might want to read Gul and Pesendorfer's response to the neuroeconomic critque.

 

In fact, neuroeconomists have shown that the brain doesn't really have mechanisms that reflect that it really does solve an optimization problem according to expected utility maximization. (i.e. some neurons fire to measure probabilities, and some other neurons fire to attach utility to outcomes. I think the name of one of the guys who has shown this is Colin Camerer. Check the article linked above.)

 

That's why the response is that while the brain isn't really doing it, people act "as if" they were solving these optimization problems.

[Mankins]

There is a paper by Douglas Bernheim and another by Aldo Rustichini discussing the potential of neuroeconomics. Both papers are worth a read. It's a very new field, and it hasn't produced that much useful information yet. However, I think it has great potential to influence decision theory and the rest of economics in general, and can allow us to replace some of our questionable assumptions about behavior with new ones that have solid empirical support.

[Mark_B]

There is also the book Buyology. It is an interesting read.

[donovanmcnair]

I've read some papers about neuroeconomics. Great material. I think it should be considered another (new) field within social sciences in general. There shouldn't be a dichotomy between actual theory and the inclusion of neuro. It's just a different field that studies different aspects of the behavior. You can't deny some some macro data because neuro and you can't look away from the research in neuro just because it looks unconventional.

Some works are really interesting. Besides beign seen by your peers reading a paper with a tomography picture makes you feel really smart.

[zurich_econ]

The literature in which the thing is discussed:

 

It started with Camerer et al., JEL 2005 (JSTOR: An Error Occurred Setting Your User Cookie) which tries to show the great potential of neuroeconomics. The Gul/Pesendorfer-Article (The foundations of positive and ... - Google B) is in large parts a reply to and fierce critique of it (plus to Koszegi and Rabin's model of reference-dependent preferences). Bernheims article (IngentaConnect On the Potential of Neuroeconomics: A Critical (but Hopeful) Appr...) is a response to it, and there is a response to Bernheim's response by Gul/Pesendorfer here (AEAweb Journal Articles Display)

 

One thing that Gul/Pesendorfer and Bernheim agree, however, is that economics makes no claims about brain functions and that - opposed to slowlearner's opening post - neuroevidence cannot readily be used to test economic theories.

[behavingmyself]

Gul and Pesendorfer's paper is embarrassingly bad, in my opinion.

 

I think the best critique of neuroeconomics is that, if you can't detect different regions activated when there are two different choice outcomes, then the problem is obviously that you just don't have good enough resolution with your tools, because your mind is what your brain does, so there must be differences in brain activation if there are differences in choice. The question then is how to take observed differences in brain activity and convert them into models or into understanding of behavior.

 

There are isolated instances where this has happened. For instance, Laibson's dual-process model for time discounting looks much more convincing after experimental evidence shows that you can predict the outcome of a choice between short-term and long-term rewards with a pretty coarse resolution on brain scanning:

Separate Neural Systems Value Immediate and Delayed Monetary Rewards -- McClure et al. 306 (5695): 503 -- Science

 

Overall, though, these types of examples are few and far between. My personal sense is that neuroeconomists are doing too much research with fMRI and not enough with single-cell measurements or lesions to be able to draw conclusions about core underlying mechanisms of decision-making.

[econ2012]

My micro professor told us to run and hide from neuroeconomics; he said its so complicated, weird, and questionnable. It was a surprising comment coming from a game theorist!

[discreetcharm]

1. People keep using the framework, neuroeconomics vs regular economics. Not sure why.

2. I'm not sure how neuroeconomics is different from psychology. Indeed, the tools are taken straight from pyschology.

3. If you want to do pyschology, which I know nothing about, then do it.

 

Not only has neuroeconomics not produced anything, it's not clear how neuroeconomics could influence the creation of models in human behavior in any way.

[dreck]

I know embarrassingly little about neuroeconomics, but I spoke with a Harvard neuroscientist (grad student) who thought that the leap from the experiments/evidence gathered to the theoretical conclusions were beyond far fetched. She seemed to think that neuroeconomics was both over-reaching and misunderstood by most outside the field. And she had worked with Laibson! Unfortunately, I cannot defend or rationalize her claim, but the source seemed credible. Hopefully, I'll know enough to form my own opinion in the future.

[behavingmyself]

I know embarrassingly little about neuroeconomics, but I spoke with a Harvard neuroscientist (grad student) who thought that the leap from the experiments/evidence gathered to the theoretical conclusions were beyond far fetched. She seemed to think that neuroeconomics was both over-reaching and misunderstood by most outside the field. And she had worked with Laibson! Unfortunately, I cannot defend or rationalize her claim, but the source seemed credible. Hopefully, I'll know enough to form my own opinion in the future.

Laibson has done a couple of neuroeconomics experiments, but I think he has been wise to focus the substantial majority of his attention on what are essentially applied behavioral problems, like savings. It's incredibly difficult to prove anything with neuroeconomics, and it means little to find something in neuroeconomics if you can't also find it in behavior.

 

To the OP's original question, I think people should check out neuroeconomics if they want, but they should be in it for intrinsic curiosity about neural mechanisms, not because they anticipate that their work will substantially change economic thought.

[Mankins]

If psychology and neuroscience are not to be used as the basis for assumptions about economic behavior, what would you suggest as an alternative? Anecdotal evidence? Philosophy? Praxeology? Pure conjecture? In my opinion, neuroeconomics and behavioral economics should and will substantially change economic thought, but it is not yet known in exactly what way it will change. Neuroeconimics especially needs more time to develop.

 

I am also not a fan of Gul's critiques. He claims that behavioral and neuroeconomics are not economics but psychology, because the methodology employed is more similar to that used by psychologists. That is the whole point, to apply techniques from these other disciplines to economic questions. Gul seems to be implying that this kind of research should not be done by economists, which makes me wonder what value economics would have if it ignored such (potentially) relevant evidence about behavior. He also claims that economics is not prescriptive like psychology (sometimes), but rather descriptive; that we are not trying to suggest ways of improving people's welfare or making them "happier". This is a claim about the fundamental purpose of economics with which I simply do not agree. In econ 101, the definition of economics was something to the effect of "the science of allocating scarce resources". Why would we be interested in this topic if not to find better ways to allocate these resources? This is just pedantic, though, arguing about definitions. Perhaps it is pointless. My only point is that this research is not pointless, whether or not you consider it to be "economics".

[scienceofsleep200]

Mankins, I think you may have missed the subtleties of Gul and Pesendrofer's paper. The alternative they suggest is obviously revealed preference theory.

 

They wanted to say that the revealed preference deity, in whose church they are high priests (as demonstrated by their deconstructions of the work of Rabin et al), cannot be disproved by developments in neuroeconomics and that assumptions on revealed preferences are better suited to economic questions than the stuff coming out of neuroeconomics (I agree with their argument here). On the other hand, they say the empirical results coming out of this field can be used as a motivation for advances in economic theory. Anyway, I didn't think they were trying to say that the research is pointless, they just say that this research won't be able to shake the foundations of microeconomics, as some have promised.

[hotfuss]

A slightly related question: does anyone know of articles that critique behavioural economics? What is the main critique applied to behavioural economics?

[scienceofsleep200]

It depends on what you mean by "behavioural economics". If you read the Gul and Pesendorfer article, you'll see that they make a distinction between "standard (behavioural) economics" and "psychology and (behavioural) economics". They critique the latter and support the former.

[Peot]

I am also not a fan of Gul's critiques. He claims that behavioral and neuroeconomics are not economics but psychology, because the methodology employed is more similar to that used by psychologists. That is the whole point, to apply techniques from these other disciplines to economic questions. Gul seems to be implying that this kind of research should not be done by economists, which makes me wonder what value economics would have if it ignored such (potentially) relevant evidence about behavior.

 

I don't know if this is necessarily accurate. I think Gul/Pesendorfer are attempting to show that many of the methods employed by neuroeconomists are ill-equipped to answer fundamental questions in economics, because the methods/aims of the field of psychology generally pertain to altogether different things. I'd just hate to see the paper turn into a straw man decrying the entire field.

 

Basically, the paper points out the primary drawback of neureoeconomics, in that problems posed in economics under its auspices and principals are hard, if not impossible to answer under the pretenses of what they call "brain science," and vice versa.

[behavingmyself]

Mankins, I think you may have missed the subtleties of Gul and Pesendrofer's paper. The alternative they suggest is obviously revealed preference theory.

And yet revealed preference is itself an inherently normative approach, which they pretend that economists have sworn off, in addition to being a theory which ignores that revealed preferences are frequently not well-ordered, consistent, or remotely sensible. The classic critique, of course, is that a driver who falls asleep at the wheel has revealed a preference for sleeping over driving, but you also have to ask yourself if revealed preferences are a sensible basis for anything when they are so sensitive to things like defaults or framing, or when the trajectory of someone's preference can reliably be estimated a priori.

 

Mostly, G&P's paper just smacks me as plugging their ears and humming. Their critiques are scattered and, in general, not well thought out. It leaves me with the impression that they picked the conclusion before they picked the arguments.

[scienceofsleep200]

Here is Levine's take on the issue:

http://www.dklevine.com/papers/behavioral-doomed.pdf

[Norsker]

Heh, I remember Levine arguing with an audience member when he gave that lecture during last year's Tucson ESA conference(I believe with James Cox).

[behavingmyself]

Since we're posting critiques of behavioral and neuroeconomics, I thought I'd post a defense:

http://www.e.u-tokyo.ac.jp/cemano/research/DRSS/documents/microCOE0806.pdf

 

Also, the first page of this paper is, to my mind, the best explanation of what most irks me about economists who demand a reason to depart from modeling with rationality:

http://www.psych.ucsb.edu/research/cep/papers/aer94.pdf

 

We demand that macro models have micro foundations. Is it too much to ask that micro models have psychological foundations explaining why rational behavior might be expected, without simply appealing to the convenient modeling choice that has been made in other parts of the economic literature?

 

Ultimately, the job of economists is to study and describe economic behavior. There is a broad amount of evidence that behavioral explanations are superior to rational-actor simplifications, much of which Levine fails to mention. See the work of Shiller, for instance, and the variety of other work that has been done demonstrating behavioral effects in finance. See Laibson's work on savings. See Thaler's work on a variety of subjects. Why some economists feel the need to dismiss these lines of inquiry is beyond me.

[scienceofsleep200]

And yet revealed preference is itself an inherently normative approach.

How so? It's not prescriptive in any way -- it just observes choices that people make. Sure, to get certain, specific results in economic theory, one needs to make further assumptions about the way that people choose (what we may call rationality assumptions). But, as the G&P point out, the standard (behavioural) economists depart from these when the empirical evidences suggests otherwise (GARP may get dropped if observations do not support it, and this allows for richer models).

 

but you also have to ask yourself if revealed preferences are a sensible basis for anything when they are so sensitive to things like defaults or framing, or when the trajectory of someone's preference can reliably be estimated a priori.

These are all areas of research and a number of them have proposed solutions in the revealed preference framework. Maybe someone else with much more knowledge than me can help here by giving some references. None of this means that revealed preference is not a useful basis to build more complicated models from. You must concede that it's certainly the best one we have.

[scienceofsleep200]

Also, the first page of this paper is, to my mind, the best explanation of what most irks me about economists who demand a reason to depart from modeling with rationality:

http://www.psych.ucsb.edu/research/cep/papers/aer94.pdf

Why should these things irk you? There's no need to get sensitive about it, it's just a turf war with everyone defending their territory. As people just starting our PhDs (I assume you are in this boat also), we have no territory to defend, so I see little need in getting worked up! I have only a weak preference for the standard theory and could just as comfortably be sitting on your side of the fence in a few years time.

 

Nonetheless, I will respectfully disagree with the opening point of that paper. The "computational devices", when employed fully, are best seen as rational IMO. When people make decisions quickly (bounded rationality) they make mistakes, but ask them to take the time and re-evaluate their reasoning they will most often not be deterred by framing effects (i.e. when choosing ice cream, if an individual chooses chocolate when offered {chocolate, vanilla}, but she chooses vanilla when offered {chocolate, vanilla, double chocolate} [maybe because of memories of getting sick from eating too much chocolate], given time to make up her mind about whether "chocolate" is/or is not overly chocolate-y, she will change either her first or second choice).

 

We demand that macro models have micro foundations. Is it too much to ask that micro models have psychological foundations explaining why rational behavior might be expected, without simply appealing to the convenient modeling choice that has been made in other parts of the economic literature?

 

I think it is too much. The test of any model is how it performs empirically and you only need to look at the success economics has had with it's revealed preference foundations. If you really wanted "psychological foundations" (I assume you mean neuroscience foundations, because the psychology I've seen doesn't really have a solid base of simplifying assumptions, it pretty much says people are complicated), one would probably have to throw out revealed preference/rationality altogether. That strikes me as a step back, rather than a step forward.

 

Keep in mind that without abstraction, there is no science of any kind. Just like Newtonian physics, for example, the abstractions common in economics are more useful in certain settings (analysing certain types of behaviour) than others.

[Mankins]

Mankins, I think you may have missed the subtleties of Gul and Pesendrofer's paper. The alternative they suggest is obviously revealed preference theory.

 

They wanted to say that the revealed preference deity, in whose church they are high priests (as demonstrated by their deconstructions of the work of Rabin et al), cannot be disproved by developments in neuroeconomics and that assumptions on revealed preferences are better suited to economic questions than the stuff coming out of neuroeconomics (I agree with their argument here). On the other hand, they say the empirical results coming out of this field can be used as a motivation for advances in economic theory. Anyway, I didn't think they were trying to say that the research is pointless, they just say that this research won't be able to shake the foundations of microeconomics, as some have promised.

 

Gul and Pesendorfer claim that economics is not prescriptive, but normative economics (even under a revealed preferences framework) is prescriptive by definition. Why should revealed preferences be the preferred welfare criterion, and not happiness? What is the justification for using standard revealed preferences as a welfare criterion? Gul and Pesendorfer simply say that it is the definition of economic welfare. It is an axiom and is not based on anything, except maybe (faulty) intuition. Of course, happiness needs to be more precisely defined in order to be useful. I agree with "CLP" and others in asserting that preferences at the time of choice and preferences at the time of consumption are not necessarily the same (basically assertion 2 in the "neuroeconomic critique"). In a way, we are still talking about revealed preferences, since the consumption preferences have to be revealed somehow in order to be useful and informative.

 

Gul and Pesendorfer actually have a paper on temptation and self control, which I have not read in its entirety, but it seems interesting. I will say that a problem with attempting to construct preferences that are consistent over time in the presence of temptation and a lack of self control is that agents are often terrible at empathizing with their future selves, especially when their future self is in a "hot" emotional state like sexual arousal. How often do you see sexually driven advertisements on TV and in store displays? Maybe this line of research won't "shake the foundations of microeconomics" in the sense that such a distinction between choice preferences and consumption preferences is necessary in every model. However, while neuroeconomists may not have accomplished this yet, if you could be convinced that an agent's choice preferences and consumption preferences were different, I'd find it difficult for you to justify using his/her choice preferences to determine welfare.

[Mankins]

I don't know if this is necessarily accurate. I think Gul/Pesendorfer are attempting to show that many of the methods employed by neuroeconomists are ill-equipped to answer fundamental questions in economics, because the methods/aims of the field of psychology generally pertain to altogether different things. I'd just hate to see the paper turn into a straw man decrying the entire field.

 

Basically, the paper points out the primary drawback of neureoeconomics, in that problems posed in economics under its auspices and principals are hard, if not impossible to answer under the pretenses of what they call "brain science," and vice versa.

 

The paper is full of "straw man" arguments of its own:

 

"This separation enables the positive analysis to proceed without having to resolve difficult philosophical problems such as figuring out what makes people happy or who is more deserving of happiness"

 

I don't know of any neureconomics paper making assertions about the latter. Also, figuring out what makes people happy seems like a worthwhile goal if we're trying to decide how to allocate scarce resources.

[Mankins]

You must concede that it's certainly the best one we have.

 

Must concede? There are many brilliant economists and other researchers who would disagree with you.