2. Neuroeconomics and Rationality Ben Ollen Indiana University

3. What is it? How is it relevant to the study of economics?  There are many answers:  An collaboration between economists, psychologists, and neuroscientists  A threat/boon to traditional economics  An investigation into the role of the mind during decision making, which focuses on the neural mechanisms responsible for particular behaviors  What can/does it offer traditional economics?  A development parallel to Psychology  Cognitive Revolution  Opening the “black box” of the mind  Gives us the ability to evaluate basic assumptions of economic theory

4. What sets it apart from other branches of economics?  In large part, its focus on observing, identifying, and manipulating the neural mechanisms involved in decision making for both humans…  EEG  MRI  fMRI  Diffusion tensor imaging  Psychophysical measurement  Transcranial magnetic stimulation  And animals  Single neuron measurement  Electrical brain stimulation Camerer, Loewenstein, Prelec (04) Fig. 1

5. What have we learned from it so far?  Affect and automation  Ultimatum and dictator games  Spurious Sense-Making  Utility and Expected Value  Neural representations of expected value  Multiple utilities  Rationality, how to define it?  Bounded Rationality vs. Economic Rationality Camerer, Loewenstein, & Prelec (05). Table 1

6. What have we learned from it so far?  Affect and automation  Ultimatum and dictator games  Spurious Sense-Making  Utility and Expected Value  Neural representations of expected value  Multiple utilities  Rationality, how to define it?  Bounded Rationality vs. Economic Rationality Camerer, Loewenstein, & Prelec (05). Table 1 What economic rationality is concerned with

7. What have we learned from it so far?  Affect and automation  Ultimatum and dictator games  Spurious Sense-Making  Utility and Expected Value  Neural representations of expected value  Multiple utilities  Rationality, how to define it?  Bounded Rationality vs. Economic Rationality Camerer, Loewenstein, & Prelec (05). Table 1 What economic rationality is concerned with Other important components for decision making

8. What have we done with the insights gained?  Libertarian Paternalism  Presenting decisions in a way which should increase a consumer’s welfare  Education  Studying the effects of exposure to economic theory on the brain and future decision making  Neuromarketing  The commercial side of the same coin

9. How can you learn more about it here at IU?  Independent research  Check the website on your handout for links to relevant literature  Plan of study  Consider taking classes, or even double majoring, in: Psychology, Neuroscience, or Cognitive Science  Join a lab  Gain first hand experience by working with researchers who study decision making and the brain right here on campus! http://iuneuroeconomics.weebly.com/

10. References  Camerer, C. F., Loewenstein, G. F., & Prelec, D. (2005). Neuroeconomics: How Neuroscience Can Inform Economics. Journal of Economic Literature 43, 9- 64. http://people.hss.caltech.edu/~camerer/JELfinal.pdfhttp://people.hss.caltech.edu/~camerer/JELfinal.pdf  Camerer, C. F., Loewenstein, G. F., & Prelec, D. (2004). Neuroeconomics: Why Economics Needs Brains. The Scandinavian Journal of Economics 106(3), 555-579. http://www.jstor.org/stable/3441124http://www.jstor.org/stable/3441124  Glimcher, P. W. (2008). Neuroeconomics : decision making and the brain. London: Academic.  Jang, W. P., Zak, P. J. (2007). Neuroeconomics Studies. Analyse & Kritik 29, 47-59. http://analyse-und-kritik.net/2007-1/AK_Park_Zak_2007.pdfhttp://analyse-und-kritik.net/2007-1/AK_Park_Zak_2007.pdf  King-Casas, B., Tomlin, D., Anen, C., Camerer, C. F., Quartz, S. R., & Montague, P. R. (2005). Getting to Know You: Reputation and Trust in a Two-Person Economic Exchange. Science 308(5718), 78-83. DOI: 10.1126/science.1108062  Knutson, B., Taylor, J., Kaufman, M., Peterson, R., & Glover, G. (2005). Distributed Neural Representation of Expected Value. The Journal of Neuroscience 25(19), 4806-4812. doi: 10.1523/JNEUROSCI.0642-05.2005  Kosfeld, M., Heinrichs, M., Zak, P. J., Fischbacher, U., & Fehr, E. (2005). Oxytocin increases trust in humans. Nature 435, 673-676. doi:10.1038/nature03701  Powell, K. (2003). Economy of the Mind. PLoS Biology 1(3), 312-315. http://people.hss.caltech.edu/~camerer/web_material/Neuroeconomics.pdfhttp://people.hss.caltech.edu/~camerer/web_material/Neuroeconomics.pdf  Sanfey, A. G. et al. (2003). The Neural Basis of Economic Decision-Making in the Ultimatum Game. Science 300(1755), 1755-1758. DOI: 10.1126/science.1082976  Sunstein, C. R., Thaler, R. H. (2003). Libertarian Paternalism Is Not An Oxymoron. University of Chicago Law Review, forthcoming. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=405940 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=405940  Tymula, A. (2014, June 14). Explainer: neuroeconomics, where science and economics meet. Retrieved from http://theconversation.com/explainer- neuroeconomics-where-science-and-economics-meet-27929?utm_medium=email&utm_campaign=Latest+from+The+Conversation+for+17+June+2014+http://theconversation.com/explainer- neuroeconomics-where-science-and-economics-meet-27929?utm_medium=email&utm_campaign=Latest+from+The+Conversation+for+17+June+2014  Worsdorfer, M. (2014). Inside the ‘Homo Oeconomicus Brain’: Towards a Reform of the Economics Curriculum? Journal of Business Ethics Education 11, forthcoming. 1-36. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2484618http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2484618