Neuroeconomics

Advertisement companies read people’s brains, and then decide what to cell. They do this because when a person likes “A” more than “B”, brain’s desire language dopamine tells what it likes more. Neuroeconomics is a term that can be defined both formally and informally: formally, “neuroeconomics is the application of neuroscience tools and methods to economic research" (What Is Neuroeconomics?, n.d.); informally, neuroeconomics means analyzing how neurons manipulate people to use money. In a more general sense, neuroeconomics is based on three different disciplines: neuroscience, psychology, and economics. By linking decision-making from economics, behavior from psychology and biology of behavior from neuroscience, neuroeconomics is built up (What Is Neuroeconomics?, n.d.). n the basis of all these disciplines, lies the process of decision-making. The decision-making process is a cognitive process that is carried out in the human brain. Basically, you choose something over the other thing (Hathaway, 2019). It is that simple! You can choose a car over a ship. Or a bag over a computer. When you do this decision and actually buy something, then the action that you have undertaken links its neurological and psychological basis to economy, creating neuroeconomics. All in all, in this writing piece, neuroeconomics and decision-making process - from neurological, psychological, and economical - will be discussed and analyzed.

This paragraph investigates the neurological perspective of neuroeconomics. Let’s start by assuming a person who likes cats better than dogs. Due to this liking situation, when a person looks to a cat, more neuronal activity would be present in his/her brain indicating a cat preference. In a more deep and molecular level, this is what happens: when a person perceives a reward or something that the person would choose over the other thing - something that can excite and reinforce the person's behavior in a desired way - excitatory neurotransmitters such as glutamate and dopamine rush to nucleus accumbens from different brain complexes - most importantly from ventral tegmental area. When these excitatory neurotransmitters meet the nucleus accumbens, then an increased perception or identification of reward occurs contributing to reinforcing behaviors. Other than this, let's see an example of what happens to a person's brain when he/she gets into decision making process: A cat and a dog presented next to each other to, again, a cat person. When the person looks to the cat instead of the dog, the neural firing from ventral tegmental area to nucleus accumbens would heighten stressing a highly possible indication of choosing the cat over the dog, a sense of reward, and a decision-making process. If the person is asked to choose between them and take one to his/her home, then the rush of excitatory neurotransmitters would be onto prefrontal cortex and hippocampus, too. This would aid the person in choosing-to-act principle. Then, the person would act according to his/her choice. In addition to all these complex neuronal systems, most specifically, the dopamine-2 receptors located on the prefrontal cortex and hippocampus aid in the decision making process because the rush of dopamine can reach to the prefrontal cortex and hippocampus, too (Dopamine Modulates Dynamic Decision-Making during Foraging | Journal of Neuroscience, n.d.). When it reaches, as the prefrontal cortex is a brain region responsible for decision making and as the hippocampus is responsible for mostly the memory, the remembrance of past events aids into the present decision-making process. Last but not least, there is another brain region aiding in decision making process: insular cortex. While evaluating either a decision should be made or not, the previous experiences’ patterns -which are stored mostly in hippocampus, amygdala, and ventromedial prefrontal cortex –become activated by the insular cortex and they can be used. Thus, when a person evaluates to decide, if he/she includes his/her past experiences, he/she could regard to be biased and optional in planning because he/she would use insular cortex. In other words, it can be said that the usage of insular cortex while deciding could lead to bias and being opinionated (Droutman et al., 2015). All in all, brain’s decision juices’ – glutamate and dopamine – rush to specific brain regions; this rush is initiated mostly from ventral tegmental area and sometimes from other areas and goes to nucleus accumbens, prefrontal cortex, hippocampus and insular cortex helping people to be decisive.

This paragraph investigates the psychological perspective of neuroeconomics. While psychologically analyzing decision-making process, we do not need to touch on biological complexes. Basically, we need to know the process of "how" do we decide what we do cognitively and logically, not neuronally. While people decide something, they sometimes use several strategies named heuristics which are basically mental shortcuts reducing time and mental effort; they are simple rules of thumb; they are fast, so they can lead to errors. These heuristics have different types:

1. Availability Heuristic: This heuristic is the strategy in which a decision is made by the idea that comes up to the person’s mind in the shortest amount of time.

2. Representativeness Heuristic: This heuristic is a strategy in which a decision is made with estimating the likelihood of an event by comparing it to an existing prototype that already exists in the person’s mind.

3. Anchoring and Adjustment: This heuristic is a strategy that is used while deciding numbers. The person shifts in a small amount from a readily available number. For instance, the readily available number – the anchor – is used to shift the decided number – the adjustment process.

4. The Framing Effect: This is a heuristic strategy in which a person try to be safe as possible – the person tries to be risk-averse. The person wouldn’t gamble for a gain, yet he/she will gamble to avoid a certain loss. For instance, an investor would choose the preservation of the capital over the potential for a higher-than-average return because in the higher-than-average return, there is a risk of losing the higher-than-average of the money.

Other than rapidly deciding and having shortcuts to decide, different decision-making techniques can be seen:

1. Decisional balance sheet: A sheet with listed benefits and costs is used. This technique is first suggested by Plato.

2. Satisficing: Alternatives are examined only until one is found.

3. Maximizing/Optimizing: All alternatives are examined, and then, throughout them, the best option is chosen.

4. Acquiesce to a person in authority: This means just following orders.

5. Anti-authoritarianism: A person decides to be the most opposite to the authority he/she is under.

6. Flipism: Giving the luck a chance is basically this. Flipping a coin, cutting a deck of playing cards, or such random activities are examples of flipism.

7. All in all, people use different types of decision-making processes, mostly either heuristics, or the other individual processes that are listed above. These psychological decision-making processes only work if a neuronal backbone is present for them in people’s brains. Yet, what makes sense to us about how we decide is the psychological perspective (Decision Making | Boundless Psychology, n.d.)

This paragraph investigates the economical perspective of neuroeconomics. In the economics, the neuronal measurements and psychological behaviors build up economic analysis:

1. Supply and demand determination: Basically, supply and demand means the price of goods increasing as either the good’s amount decreases, or the demand for that good increases. In this process, to see what people like and decide to buy, analysis of dopamine and glutamate rush to specific brain regions can be analyzed while people are in touch with the goods. Thus, what is desired can be seen and that can be produced more over the other goods.

2. Utility analysis: Again, with the analysis of dopamine and glutamate as they are the brain’s decisive juice, what is liked more compared to other can be found because when you like something, it means you have decided to use it.

3. Advertisement analysis: As can be guessed, advertisements are the most important representations of items that are tried to be sold because, most of the time, an advertisement leads a person to buy the good. When the advertisements are analyzed, again the dopamine and glutamate’s rush to specific brain regions are observed to see either the people watching the advertisement liked or disliked the product. According to these neurological measurements, then the advertisement is released.

In conclusion, the economic part of neuroeconomics is linked to the marker of decision: the dopamine and glutamate. As they represent what a person likes, dislikes, decides or not-decides, they can act as “neuro-markers” for decisive behavior of people, so they can be identified as people’s level of liking something (Xian & Wang, n.d.)

In a nutshell, neuroeconomics, is “the interdisciplinary field that seeks to explain human decision making, the ability to process multiple alternatives and to follow a course of action” (‘Neuroeconomics’, 2021). With this definition, it is very important to know that by the help of neuroeconomics, market and value of every good can be detected, and companies can act accordingly.

References:

Decision Making | Boundless Psychology. (n.d.). Retrieved 24 September 2021, from https://courses.lumenlearning.com/boundless-psychology/chapter/decision-making/

Dopamine Modulates Dynamic Decision-Making during Foraging | Journal of Neuroscience. (n.d.). Retrieved 24 September 2021, from https://www.jneurosci.org/content/40/27/5273

Droutman, V., Bechara, A., & Read, S. J. (2015). Roles of the Different Sub-Regions of the Insular Cortex in Various Phases of the Decision-Making Process. Frontiers in Behavioral Neuroscience, 9, 309. https://doi.org/10.3389/fnbeh.2015.00309

Hathaway, B. (2019, June 25). How the brain helps us make good decisions—And bad ones. YaleNews. https://news.yale.edu/2019/06/25/how-brain-helps-us-make-good-decisions-and-bad-ones

Neuroeconomics. (2021). In Wikipedia. https://en.wikipedia.org/w/index.php?title=Neuroeconomics&oldid=1043689115

What happens inside the brain when you think about money. (n.d.). Retrieved 24 September 2021, from https://www.zmescience.com/medicine/mind-and-brain/brain-and-money-05234/

What Is Neuroeconomics? (n.d.). Investopedia. Retrieved 23 September 2021, from https://www.investopedia.com/terms/n/neuroeconomics.asp

Xian, R., & Wang, M. (n.d.). Reward System and Neuroeconomics.