Neuroeconomics: Opening the Black Box of Economic Behavior

Abstract:     
This paper introduces an emerging interdisciplinary research field, namely neuroeconomics, which uses the neuroscientific methods to investigate the neural systems supporting economically relevant behaviors. Traditional economic research is restricted to the level of describing decision behaviors, leaving the cognitive mechanisms behind them unknown. It also fails to predict many decision behaviors in real life. The combination of neuroscience and economics makes it possible to uncover the underlying mental and neural processes of economic decision making. This paper reviews the findings from the neuroeconomic literature on encoding of utility in the brain, showing that neuroeconomic research can test the validity of economic concepts and theories and provide new explanations to economic phenomenon. It discusses the important role the emotion plays in economic decision making and the associated neural evidence, suggesting the possibility of understanding the impact of emotion upon decision making by measuring the neural activity of emotion-related brain regions. This paper also summarizes neuroscientific studies on cooperation and trust in monetary games, pointing out that the trend of neuroeconomic research is to model the real life decision making in the laboratory with solid ecological validity. Neuroeconomics provides not only neuroscientific evidence for economic theories, such as the prospect theory, the regret theory and the game theory, but also foundations for more comprehensive and powerful economic models.

Number of Pages in PDF File: 9

Keywords: neuroeconomics, neuroimaging, economic behavior, utility, regret, cooperation

JEL Classification: C7, C9, D8, D9

Accepted Paper Series