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Business Life: Economics with brains

First published in Business Life Magazine, October 2008

Given the macho reputation of the trading floors of London and New York, headlines were guaranteed this spring when researchers at Cambridge University published their findings: the research linked the behaviour of City traders to testosterone.
The researchers studied 17 (male) traders at work for eight days, took saliva samples at 11am and 4pm – most of the day’s trading occurs between those times – and discovered that for each individual, temporarily high levels of testosterone seemed both to be a cause of and a consequence of a successful day’s trading. After a run of success, another hormone – cortisol, associated with stress – tended to build up, while an excess of testosterone provoked reckless behaviour.
It was a fun addition to the rapidly growing field of neuroeconomics, which marries economics and brain science, studying the links between how people make economic decisions and how their physiology changes while that is happening. Neuroeconomics tools include not only the saliva swab, but devices to measure skin conductivity, and, of course, brain scanners.
Neuroeconomics boosters are making big claims about the way that brain science is going to revolutionise our understanding of the way people make decisions. Better policies on pensions or alcohol dependency may result. So too, alarmingly, may more seductive advertising and marketing.
But while the field makes for irresistible newspaper copy, it remains small and controversial. Perhaps the simplest objection from most economists is: so what? Economics has always been agnostic about what goes on inside the brain: economists study what people do, and are more likely to pay attention to psychologists who discover unexpected behaviour than to pictures of brainwaves.
While caution is warranted, it is surely too soon to write off neuroeconomics entirely. The brain scanners can help to show us why someone does what they do, and that is sometimes a vital clue in explaining behaviour.
For example, one common laboratory experiment, the two-player “trust” game, has now been subjected to neuroeconomic study. Economic theory predicts that in “trust games”, a rational self-interested person would not, in fact, trust anyone. But in fact, people do seem to behave in a trusting way and are rewarded with a trustworthy response.
Economists haven’t understood whether this is because people are confused about the rules of the game, or because they are, in fact, trusting each other. The neuroeconomists give a clear explanation: players get a rush of oxytocin, a hormone associated with love and trust, and the brain area that is activated is one connected with promises and reciprocity. We are humans after all, and so this young science may just have something to contribute.

28th of February, 2009Other Writing • Comments off