What is Neuroeconomics?

Neuroeconomics is an interdisciplinary field that seeks to explain human decision making, the ability to process multiple alternatives and to follow a course of action. It studies how economic behavior can shape our understanding of the brain, and how neuroscientific discoveries can constrain and guide models of economics.

It combines research methods from neuroscience, experimental and behavioral economics, and cognitive and social psychology. As research into decision-making behavior becomes increasingly computational, it has also incorporated new approaches from theoretical biology, computer science, and mathematics. Neuroeconomics studies decision making by using a combination of tools from these fields so as to avoid the shortcomings that arise from a single-perspective approach. In mainstream economics, expected utility (EU) and the concept of rational agents are still being used. Many economic behaviors are not fully explained by these models, such as heuristics and framing.

Behavioral economics emerged to account for these anomalies by integrating social, cognitive, and emotional factors in understanding economic decisions. Neuroeconomics adds another layer by using neuroscientific methods in understanding the interplay between economic behavior and neural mechanisms. By using tools from various fields, some scholars claim that neuroeconomics offers a more integrative way of understanding decision making

Traditionally defined as a mix between psychology and the economy, which serves as a basic structure in the decision-making of an individual, neuroeconomics is based on two main elements: firstly, the psychological effect of the individual in the open market (either as a result of market or even individual preferences) can influence the validation or rejection of economic theories and second, in a more psychological sense, indicates that the most optimal choices by different individuals determine the level of satisfaction they bring.

The idea of ​​treating the economy as a general field of study does not coincide with the principles of neuroeconomics. Supporters of this field argue that the economy must distance itself from the simplified decision-making model and rational interest due to an untold complexity of human nature.

The field of decision making is largely concerned with the processes by which individuals make a single choice from among many options. These processes are generally assumed to proceed in a logical manner such that the decision itself is largely independent of context. Different options are first translated into a common currency, such as monetary value, and are then compared to one another and the option with the largest overall utility value is the one that should be chosen. While there has been support for this economic view of decision making, there are also situations where the assumptions of optimal decision making seem to be violated.

One of the earliest successes dating from the 1980s came from the use of neuroscience as a way of shedding light on the flaws of the "general" and "economics" methods. As a basic example is the "ultimatum game" known in the economy as an experiment involving two individuals, the bidder, who proposes a breakdown of a sum of money between a second player / individual or the holding of money for himself. The second player / individual must either accept the specified amount or refuse it.
In case of refusal, both remain without money.

According to the classical economy theory, while the first player / individual offers the second a certain amount of money, the latter will always admit to the principle "Better Something Than Nothing". However, thinking from a neuroeconomic point of view often pushes the second player / individual to refuse the aforementioned bid for
the offer of money sharing between the two players can be seen as unjust at
percentage aspect.

This relatively new field of economics has its opponents, respectively the two professors at Princeton University, Faruk Gul and Wolfgang Pesendorfer, who conclude that neuroscience can not transform the economy as a more humane field as what is within the brain human being is of little importance to the economy in general. What matters is what they add, it is the decisions people take as a whole, and not the process of how those decisions are made.

In the end, neuroeconomics as a science is potentially seen as a growing field of study, which can result in major socio-economic discoveries, but can also stagnate in the absence of appropriate experiments or theories. A deeper and more detailed understanding of neuroeconomics is decades away, but we can not get there without starting somewhere.

Behavioral economics experiments record the subject's decision over various design parameters and use the data to generate formal models that predict performance. Neuroeconomics extends this approach by adding observation of the nervous system to the set of explanatory variables. The goal of neuroeconomics is to inform the creation and contribute another layer of data to the testable hypotheses of these models.

Furthermore, neuroeconomic research is being used to understand and explain aspects of human behavior that do not conform to traditional economic models. While these behavior patterns are generally dismissed as 'fallacious' or 'illogical' by economists, neuroeconomic researchers are trying to determine the biological reasons for these behaviors. By using this approach, we may be able to find valid reasons for the presence of these seemingly sub-optimal behaviors.