Can we foresee the advent of some sort of pills which can stimulate brains of politicians, bureaucrats, and corporate executives to make right decisions? We do not know it yet. If it happens, probably it would be a great service to the humanity. However, we do know the birth of neuroeconomics is certainly going to give the missing brain to economics. As might be evident from the name; Neuro-economics (NE) is a fusion of Neuroscience, Economics and Psychology.
This article explains what the new field is, delves into the historical evolution of the subject, the prominent contributors to this offshoot of economics, the key research methodologies employed to study different hypothesis, the potential it has to solve policy problems and its possible future for policy makers.
Economists have long been trying to understand and predict human behaviour especially in the domain of economic decision making. Basic evolutionary curiosity should have led them to seek a range of diverse views, psychological, anthropological, neurological in nature, and yet until the 1990’s there was no real attempt to seek an interdisciplinary discourse.
In the 1970’s, behavioural scientists/economists like Kahneman and Traversky or Richard Thaler challenged the classic economic models focusing on ideas of utility maximization and rationality by presenting a counter theory for rationality of human behaviour in the ‘Prospective Utility Curve’. It was not until 2005 that the first ever Society for Neuro-economics held its open registration event in Kiawah Island. Paul Glimcher was nominated the President. There have been rapid developments in this area since then, however, much is yet to be explored.
NE is a nascent area of enquiry within economics as a discipline, merely a decade old. It borrows tools of enquiry from the three disciplines. From Neuroscience it uses non-invasive brain imaging techniques for example, Functional Magnetic Resonance Imaging (fMRIs), Positron Emission Tomography (PET scans), Transcranial Magnetic Stimulation (TMS) etc. Furthermore, in economics, it borrows excessively from game theory, eg dictator/ ultimatum games.
Using concepts from psychology that overlap with economics, like cognitive bias, cognitive dissonance, social cooperation, trust, altruistic behaviour, NE creates a palette of complimentary techniques to answer complex questions about complex realities of modern social interaction. Where one area of enquiry falls short, the other compliments it with tools, methodologies or theory.
A deeper understanding of the human brain (neuroscience) and mind (psychology) can offer great insights to economic policy makers. We expect that once gaps left from a lack of attention to these issues are filled, policy discourse will proceed in the right direction
The burning question today however, is, whether this field of academic enquiry has any potential answers for social and public policy problems. There are nascent signs but still a long way to go. Daring to extrapolate from Richard Thaler’s ‘Nudge’ journey to the Nobel Prize in 2017 counts for some optimism.
In the 1970s when behavioural economics was just beginning to emerge as a field, little could anyone foresee that there will be behavioural Insight teams in the white house and 10 Downing Street? Yet, today we have ‘Nudge’ units in many governments. Similarly, Neuro-economics with its interdisciplinary approach presents policy makers and academics potential to re-imagine policy questions and poise themselves with a more varied palette of policy tools.
For example, Urban Design is a neglected field in public policy in Pakistan. With the rapidly rising population in urban centres, policy makers need to consider ‘Cities as engines of economic growth’ much more seriously than ever before. How can variations in the urban design lead to more vibrancy in our society and improved quality of life for citizens? Some experimentation in urban design needs to be investigated to show how variations influence behaviours and the human mind. Similarly, traffic congestion, disease breakouts, and crimes are important urban policy issues that today’s megapolises are confronting around the world.
So far, policy makers across the world have presented engineering or economic solutions to urban problems like congestion. A simple common-sense solution, very popular with the incumbent government, is to build more infrastructure. Better roads, wider roads, more roads! Countries like Britain, Singapore which are limited by spatial constraints opt for levying of ‘congestion charges’ at peak hours to discourage cars in the city centres. However, do we as policy makers look into the human brain’s physiology and understand how to combine the engineering and economic solutions with certain stimuli in the environment to address an urban problem like this.
There is a potential that someday neuroeconomics will be able to offer important insights to address these challenges. There is much more that a deeper understanding of the human brain (neuroscience) and mind (psychology) has to offer to economic policy makers and we are excited to expect uncovering of those gaps which will propel the discourse forward.
It can also be hoped that a better understanding of human brain will alter many assumptions about the human behavior that have long been foundational to many economic theories. Behavioral understanding has already informed consumption theory, pensions schemes, and many incentive structures, now it is time that further research in neuroeconomics will finally help economics to find its missing brain.
Komal Shakeel is an economic and development policy consultant/researcher with a focus on investment climate, entrepreneurship and neuro-economics. She has Masters degrees from London School of Economics and Peking University. She tweets @komalshakeel
Naveed Iftikhar is a public policy advisor and researcher having interest in public-sector governance, cities, and entrepreneurship. He tweets @navift
Published in Daily Times, December 5th 2017.