Winter 2009: Features
The biology behind the sometimes irrational, often emotional choices we make about money and other things we value
By Mary J. Loftus
Cattle were the earliest version of money—not a highly portable form, granted, but a measure of wealth that was nearly universally valued.
Next came cowrie shells scooped from shallow ocean waters, metal coins, paper bills, and the gold standard. Now we deal in credit cards and computerized billing, PayPal accounts and online auctions, subprime mortgages and commodity futures.
Cold, hard cash may have become more abstract, but our relationship to it—and to the idea of buying, selling, trading, and investing—is still highly emotionally charged.
“The current economic downturn is a case in point,” says neuroscientist Dennis Choi, executive director of Emory’s Neuroscience, Human Nature, and Society Initiative. “A lot has happened that doesn’t seem based in fact. You just need to observe the wild, almost daily swings in the stock market, reflecting optimism and pessimism, to see the very powerful overlay of emotions.
“We did not evolve to sell derivatives,” says Choi. “That wasn’t a driving force in human evolution. Our system to weigh risks and rewards developed for different purposes.”
How and why we make such value decisions is at the core of an emerging discipline: neuroeconomics, which exists at the juncture of neurobiology, psychology, and economics. By mapping the brain activity of volunteers with technologies such as functional magnetic resonance imaging (fMRIs) as they are asked to make controlled choices, scientists are able to peer beyond behavior into underlying thoughts and feelings.
“We’re in the early stages, and our techniques are quite crude relative to what the brain is actually doing,” Choi says. “We will probably look back on this as the stone tablet era of brain scanning. But you have to start somewhere. There’s no ‘magic hat’ that you can put on people and have them go about their business, recording everything they are thinking. You need to have properly constructed experimental paradigms and ask refined questions.”
Being able to see the activation of known brain-reward systems as they light up, however, does provide useful information, he says: “What are our biases, potential weaknesses, and strengths? What are we wired to do?”
A recent study in the journal Science, for example, seems to back up the adage that giving is its own reward. The brains of female college students were scanned as they were given $100 and told they could transfer a portion of it to charity and keep the rest. During the transfer, activity increased in the nucleus accumbens and the caudate nucleus—both areas of the brain associated with rewarding stimuli, such as viewing pictures of loved ones.
This, perhaps, is the primary lesson of neuroeconomics: it’s about much more than money. Researchers are delving into the areas of risk and reward, greed and altruism, cooperation and self-interest, fear and excitement, anticipation and novelty, pleasure and pain.
Individuals have the equivalent of neural fingerprints—patterns of brain activity unique to them, says Emory psychiatrist and neuroscientist Gregory Berns. “There is tremendous variability among people when you look in their brains that isn’t always apparent from their behavior,” he says.
Even when asked to perform the same task, individuals will show different brain algorithms, which can be used to predict their choices. “We are pulling back the curtain and looking into the brain to see what parts are running these calculations,” he says. “When you try to decode how the brain makes those decisions, then you begin to understand it.”
Berns, who has written the books Satisfaction: The Science of Finding True Fulfillment (2005) and Iconoclast: A Neuroscientist Reveals How to Think Differently (2008), became interested in the social side of neuroscience a few years back. For decades, neuroscientists, psychologists, and economists have studied human decision making from different perspectives. But, asked Berns, what if they began to cooperate, asking these same questions while watching the brain’s activity?
In 2003, he organized an informal gathering at Martha’s Vineyard, inviting a small group of neuroscientists who were studying reward processes in the brain, a group of experimental economists, a few practitioners working on Wall Street, and a smattering of experts from the financial industry—about thirty people in all. “It was a very vibrant and difficult meeting,” Berns says. “The [economists and neuroscientists] didn’t even speak the same language. There was a cultural divide. Most of that time people spent trying to understand what the other side was talking about. In the immediate aftermath, it wasn’t clear that this was going to happen again.”
Fortunately, after the initial gathering, a cross-fertilization began to occur.Participants were excited by the notion of blending the two disciplines, sensing the potential for something new and different. With advances in brain-scanning technologies, “neuro” was showing up in front of a lot of different fields, from neuroethics to neuromarketing to neurolaw. Why not neuroeconomics?
While skeptics questioned whether the field was merely a fad, the term made its way into the cultural mainstream, popping up in Psychology Today, the Wall Street Journal, Oprah, and Wikipedia. The national group continued meeting and in 2005 the Neuroeconomics Society, of which Berns is a founding member, was incorporated as a nonprofit organization. A journal is planned, and the society just released the book Neuroeconomics: The Brain and Decision Making.
This hybrid field, Berns believed, could be useful in supplying reliable guidance on matters of policymaking, from public health to national security. “We want to encourage people to make better decisions,” he says, “both individually and collectively.”
Enter Emory’s Center for Neuropolicy, directed by Berns as Distinguished Chair of Neuroeconomics, which began this summer and is supported by the School of Medicine, Emory College, and Goizueta Business School.
The center will focus on the biological basis of decision making, and brings together “some of the brightest minds at the University to investigate problems of global importance,” says President James Wagner.
A starter marriage
To understand what brain imaging brings to economics, you first have to understand the long-standing assumption of traditional economic research models: that people are rational in their decision making.
But this isn’t always the case.
“Take the current financial situation,” Berns says. “Decisions are driven by expectation, that’s why the market is gyrating up and down with each new bit of information—what the Fed plans to do, what the Treasury plans to do. It changes people’s expectations of the future. But it has nothing to do with the underlying value of the companies. And when you make a decision based on a snippet of information, it’s probably a stupid decision.”
By bringing neuroscience into the equation, he says, “you can create models of decision making based on what’s actually happening in the brain.”
In his own work, Berns began collaborating with Emory colleague Monica Capra, assistant professor of economics.
Capra knows firsthand the human impact of economic decisions and policies: she decided to become an economist as a teenager after runaway inflation in her home country of Bolivia took a heavy toll, and she has watched the economic crisis unfold in the U.S. with concern.
“It’s easy to point fingers—let’s burn the CEOs—but that’s witch hunting,” she says. “You have to get deeper into the problem, such as the incentives to take too many risks. If you change incentives, you change behaviors.”
The worst thing a country can do, she says, is to try to prevent wealth. “That’s a short-sighted response,” Capra says. “Nothing is more humanitarian than the free market. It gives people the freedom to develop their capabilities.” Of course, she adds, there must also be adequate taxation and social safety nets for those who fall through the cracks.
Capra’s research traditionally has focused on creating model economies and observing the way subjects act within the parameters of the experiment. By conducting joint studies with Berns, however, she has gone beyond observing behaviors to the neurobiological level. “It’s a marriage of neuroscience and economics,” she says. “Each makes use of the other and gives something back, like any marriage.”
Berns says his work has taken a dramatic shift as well. “I used to present rewards passively to subjects in the scanner. They didn’t have to do anything to get the rewards—it was basically Pavlovian conditioning. But after meeting with the economists, I became primarily concerned with how people make choices.”
The pleasure trade-off
The idea that the brain contains discrete reward systems began not with neuroscience and fMRIs, but with basic learning theory and electrodes attached to the skulls of rodents—rodents such as those that inhabit the cages of Darryl Neill’s lab in the Rollins Research Building.
These rats learned to push a lever that would deliver a brief stimulation—about a sixth of a second—to what is now commonly called the pleasure center of their brains. “To get another stimulation, they have to press the lever again. Otherwise, they would just sit on it,” Neill says. He points out deep grooves in the stainless steel levers the rats must press: “Those are teeth marks.”
Rats show no satiety in these experiments. They will press the lever for eighteen hours, fall over from exhaustion, and start again.
Addiction follows the same reward pathways, says Neill, gesturing to cages with pumps on top, with which rats can shoot street drugs straight into their veins. There are also rats being tested for food addiction with pellets.
“Economists have discovered emotion,” Neill says. “For a long time, they viewed humans as rational, but people do stupid things even in investing, which has recently been revealed on a grand scale. When you combine these two threads—reward systems in the brain, and emotions underlying decision making—it’s a wild and wooly frontier.”
Neill has conducted a few experiments he calls “rodent neuroeconomics,” in which rats have the choice of a trade-off. One involves a cage with two levers: the rat must decide if it wants to spend time away from the pleasure lever to push another lever that will increase the stimulation when they return to the original lever. “This requires a cost-benefit analysis,” he says. “Suddenly, you’re in the world of rat decision making.”
And just how different is that, Neill asks, from stockbrokers out on the floor of the exchange, calculating risks and maximizing rewards?
If you look, it seems, levers are everywhere.
Are consumers happier the more choices they have? Why do tourists keep playing the slots in Vegas even when they’re losing? Do wine drinkers perceive a glass of vino as tasting better if it costs more?
Now that economists have the chance to peer into people’s brains, all kinds of fascinating questions are emerging, as well as some preliminary findings.
One is that, on the whole, we may be more driven by expectation than reality: it seems that the anticipation of a reward—a huge payoff, for example—may actually be more enjoyable than the reward itself. “It’s questionable how much reality has to do with our perceptions even after the fact,” Berns says.
And, while conventional wisdom might hold that people are happier the more choices they have, Capra says studies have shown that too many choices may actually lead to less happiness—by creating buyer’s remorse. For instance, if there are a few jelly beans, it feels good to select a favorite flavor. But if there are dozens, it grows confusing, and the taster might think, “Would I have liked the dark red one better than the one I chose?” To be able to view the brain’s response to such stimuli would give clues as to what creates satisfaction or dissatisfaction with one’s selection.
A groundbreaking neuroeconomics study from Stanford University shows that two separate brain areas—one related to fear and the other to excitement—light up just before subjects make irrational investment decisions. Also, according to the researchers, when people are in a “positive arousal state,” they concentrate on prospective benefits, enjoy the feeling of risk, and are more likely to make a foolish move. But when they are thinking about costs, they use different brain modules, grow anxious, and take few risks—even ones that would probably pay off.
Jasminka Ninkovic 07PhD, assistant professor of economics at Oxford College, says behavioral economists are starting to consider the impact of context and underlying emotions.
Take, for example, a study showing that if there were two gas stations across the street from each other, both selling gas for 95 cents per gallon with cash and $1 per gallon on a credit card, the station that offered a “5 cent discount for cash” would fare better than the one with a “5 cent surcharge for a credit card”—even though the price per gallon is ultimately the same at each station.
“It’s simply because it sounds better—discount instead of surcharge,” Ninkovic says. “But why would we regard one as better than the other? Neuroeconomics is trying to measure what is going on when we are making those decisions.”
Ninkovic teaches macroeconomics and microeconomics at Oxford, and says her current students are seeing just how relevant the topic is to their lives. “These are historic events,” says Ninkovic, who is assigning newspaper readings, journal articles, and The Economist. “It’s less abstract now.”
But the insights to be gained from neuroeconomics aren’t limited to understanding individual decision making, says Berns. Rather, this new field may generate information that can be used to determine public policy in areas such as health care and national defense. The core question, he says, is this: How do humans balance individual self-interest against societal good?
That’s quite a long way from asking, “How many cattle do you own?” But from the very first trade, theft, loan, or promise, economic decision making was always about more than the commodity. It was about human nature: a complex topic, indeed.