You’ve probably heard the joke about the science, engineering, and economics professors stranded on an island together. The first to think of actual ways to get off, but the economist just assumes they have a boat and they can set sail at any time. Economists love to assume things. Just ask my roommate, an economics major, and he’ll tell you.
They have to assume because human behavior is so unpredictable, no one has modeled it successfully yet. Economics works in general because people in general behave the same way. Supply and Demand, the Prisoner’s Dilemma, Buy Low, Sell High, all these things hold up because people tend to act similarly in given situations.
The one underlying assumption though is that people act in their own best interests. I’ve always had a problem with that. You’re assuming the person knows what their best interest is, and you’re also assuming you know what that interest is. People don’t always think rationally enough to do that. Emotions govern most of what we do.
Neuroeconomics is trying to figure out the underlying psychological factors in economics. Correlating brain activity with known functions of brain centers, gives neuroeconomists a clearer understanding of what drives a person’s decisions.
So far, early studies have shown the prefrontal cortex, used in higher, rational reasoning, is active during long-term decisions. But short-term, immediate decisions are affected by more basic systems.
This field is obviously nascent, and no major findings have been reported. But this field could definitely lead to a better understanding of how people make economic decisions. Armed with that knowledge, perhaps we could have a better idea of what our best interests actually are.
0 Responses to “My Mind on My Money and My Money on My Mind”