Economists Studying The Human Brain

Bleeding Edge

from the still-trying-to-figure-us-out dept

Economists used to operate under the assumption that, for the most part, people behave rationally. Eventually, they started realizing that their theoretical models of human behavior didn’t translate very well into the real world. Behavioral economics, the study of how people act in real world situations, was born. But this has problems too; for one thing, people sometimes change their behavior when they know they’re being studied. So now it’s time to go beyond behavioral economics, to neuro-economics. Now instead of speculating about how humans might behave, economists are looking under the hood, using medical technology to monitor how the human brain reacts when making economic decisions. Turns out that the human brain is wired completely wrong when it comes to assessing risk and reward, and it makes people perform poorly in areas like investing. On the other hand, the brain does use resources in an efficient decentralized manner, with different sections specializing in different kinds of decision-making, sort of like Sony’s upcoming nine-core chip dubbed The Cell. Of course, it remains to be seen whether any of this research will make economics a more useful discipline, or whether it’s just more fodder for papers that nobody reads. Most likely, it will simply spawn a few niche hedge funds.