Making Economic Sense of Brain Models

61 Pages Posted: 24 Jan 2006 Last revised: 26 Oct 2007

See all articles by Werner Neu

Werner Neu

Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste

Date Written: October 21, 2007


Neuroeconomics draws attention to motive forces that have no room in the standard framework of economic theory. The present paper develops a conceptual approach that tackles the issues at the systemic level of the brain, i.e. by analyzing and modeling the brain processes that decide on behavior. It takes as the basic unit of analysis potential stimulus-response actions which - when selected - become actual behavior. These potential stimulus-response actions have intentionality and emotional strength. At any moment of time several of these potential actions compete with each other for the privilege of becoming actual behavior, where this competition can be modeled on the basis of economic principles. The behavior that materializes may cover the range from the rational to the foolish depending on which of the potential responses gathers the greatest emotional strength, which in turn is determined by the individual's past experience and capacity for rational action. Therefore, while it can normally be expected that the rational dominates the foolish, this need not always be the case. Which potential actions become behavior in a concrete instance is decided by a mechanism implemented by the basal ganglia, a real structure in the brain. The insights provided by this approach afford coherent explanations of behaviors at the level of the individual that are not readily explicable by the standard approach. The paper is organized as follows: 1 Introduction, 2 Background from the cognitive sciences, 3 View from economics: a model, 4 Using the model for economic analysis, 5 Summary and concluding observations.

Keywords: neuroeconomics, bioeconomics, economy of mind, brain model, behavioral economics, institutional economics, emotions, rationality, habits

JEL Classification: A12, B52, B59, D89

Suggested Citation

Neu, Werner, Making Economic Sense of Brain Models (October 21, 2007). Available at SSRN: or

Werner Neu (Contact Author)

Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste ( email )

Rhöndorfer Str. 68
53604 Bad Honnef, 53604
0049-173-2959689 (Phone)
0049-2224-968011 (Fax)

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