Why Economic Psychology and Behavioral Finances Needs Neurosciences Knowledge to Develop a Strong and General Theory of Economic Decision Making?

53 Pages Posted: 11 May 2020

See all articles by Armando da Rocha

Armando da Rocha

Research on Artificial and Natural Intelligence (RANI)

Date Written: April 16, 2020

Abstract

There is nowadays an extensive literature about irrationality of the economic human decision making. Economic Psychology and Behavioral Finances attempt to provide better models of the economic and financial human reasoning, using knowledge provided by Psychology and Behavioral Sciences. However, up to the moment they did not succeeded in this endeavor. A brief review of these models published as solutions to the rational inconsistencies is presented to support this claim, and to set the grounds for the proposal of including Neurosciences knowledge about the neural circuits for reward, harm and cost into a formal model of human reasoning avoiding these rational inconsistencies. The proper concept of rationality is discussed and proposed to be better defined as any decision promoting the animal’s homeostasis, instead of relying in any specific of the above published formal theories. The Allais paradox and result from lotteries studies are explained using the proposed model. A hypothetical experimental design about the Asian Problem is proposed to illustrate how to plan future Neuroeconomic experimental studies to check this model. Finally, both behavioral and neural results on simulated trading decision making are briefly reviewed and discussed to illustrate how to implement this type research.

Keywords: Decision making, Neuroeconomics, Economic Psychology, Behavioral Finances, Prospect Theory, Rationality, Benefit, Risk, Cost

Suggested Citation

da Rocha, Armando, Why Economic Psychology and Behavioral Finances Needs Neurosciences Knowledge to Develop a Strong and General Theory of Economic Decision Making? (April 16, 2020). Available at SSRN: https://ssrn.com/abstract=3577605 or http://dx.doi.org/10.2139/ssrn.3577605

Armando Da Rocha (Contact Author)

Research on Artificial and Natural Intelligence (RANI) ( email )

Rua Tenente Ary Aps, 172
Jundiai, 13207-110
Brazil

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