Nearly since its inception, the field of Economics has used preference relationships, utility functions, and complete rationality as the theoretical basis for nearly all of its major findings. Nevertheless, while the homo oeconomicus may preform well in certain contexts, in others areas the hypothesis of completely rational humans has been found to be patently false. In a paper by Kenning and Plassman (“NeuroEconomics: An overview from an economic perspective“), the authors show how neurobiology and behavioral economics have formed a recent partnership to better help us understand why people behave the way that they do. Scientists use tools such as electroencephalography (EEG), magnetoencephalography (MEG), positron emission tomography (PET), and functional magnetic resonance tomography (fMRI) to measure brain activity in the context of preference and utility evaluation. NeuroEconomics also examines issues such as trust, fairness, learning and altruism.
An example of how neurology and economics can work together involves the ultimatum game. This game has two players. The first makes an offer to the second of how to split $20 and the second person can accept or reject the offer. If the second person accepts, they split the money according to the first person’s proposal. If the second player rejects, both players get nothing.
Economic theory would tell us that homo oeconomicus should offer a minimal amount to the second player. In experimental studies, however, the most frequent outcome is that the first person makes a ‘fair’ 50/50 offer. NeuroEconomics has found that the anterior insula portion of the brain responds negatively to unfair offers. On the other hand, the dorsolateral prefrontal cortex (DLPFC) portion of the brain involves cognitive processes directed at goal maintenance and the accumulation of as much money as possible. Thus, the person making the offer in the ultimatum game must balance the two desires of their brain.
Economics is a wonderful pursuit which often explains the how of a situation; NeuroEconomics may one day help us answer the question of why.