Why say no to free money? It's neuro-economics, stupid

Times Online ^ | 7 October 2006 | Mark Henderson

[shrinkermd]

Studies show how the brain lets the emotions override common sense when reaching some tough decisions. Our correspondent reports on the 'ultimatum game'

...George Loewenstein, Professor of Economics and Psychology at Carnegie Mellon University, in Pittsburgh, and one of the pioneers of neuro-economics, said: “The new science of neuro-economics is lending support to a very ancient view of human behaviour. That is the idea that there is a conflict and interaction between passion, and reason and self-interest.

“The now standard view of people as rational maximisers of self-interest is a very recent view. Neuroscience is telling us that that was a bit of a diversion. The rational side is a process that sometimes overrides the dominant interest on human behaviour, which is the passionate side.”

[shrinkermd]

fyi

[Ken522]

So this explains why, as a practicing Roman Catholic, I would refuse the offer of free money from a Scientologist during a nonviolent interation.

[RedRover]

This explains why I always fall for those e-mails from Nigeria.

[Lunatic Fringe]

Supressing decision-making with magnets.

It's amazing how much we don't know about the human brain.

[Question_Assumptions]

We get so angry at his deliberate unfairness that we are prepared to incur a cost to ourselves, purely to punish him.

Not purely to punish him. Similar tests also show that most people intuitively understand that if they don't offer about 50% to the other person, the other person will reject the entire offer, thus by rejecting any offer that's not fair, it guarantees that most such deals will be fair.

Homo sapiens is clearly not Homo economicus, the ultra-rational being imagined by many professional economists.

It's entirely, rational, just not in the idealized sense that treats every transaction in isolation favored by "professional economists" in ivory towers because they are easier to think about. By rejecting unfair deals, people better guarantee that they'll be treated fairly. When people accept unfair deals, more unfair deals follow. It's the same with appeasement.

If you want more of something reward people for it. If you want more unfairness, reward people for offering unfair deals to other people by letting them walk away with an unfair split. Want more violenct? Let people get away with it. And so on. It's not people that are irrational. It's those idiotic "professional economists" and their limited and faulty imaginations.

[Zetman]

I notice that in the second to last paragraph, they substitute the word "fundamentalist" for "islamic terrorist". How "rational" and "fair" of them!!

[Zetman]

Supressing decision-making with magnets.

It's amazing how much we don't know about the human brain.

Although we may now be closer to explaining how people become democrats!!

: )

[Graymatter]

Ping to my rational brain. Check this out, looks promising. Neuro-economics.

[traviskicks]

Of possible interest, ideology, emotion, and reason:
http://www.neoperspectives.com/ideology_emotion_reason.htm

[3niner]

Yet in practice derisory offers are declined all the time. Indeed, if the sum is less than £2.50, four out of five of us tell the selfish so-and-so to get lost. We get so angry at his deliberate unfairness that we are prepared to incur a cost to ourselves, purely to punish him.

Actually, this is a classic game theory scenario, where each party needs to choose an optimal strategy, based on a guess about what the other will do.

If the second party accepts whatever is offered, the first party has an incentive to offer a very small amount. By committing to a minimum ahead of time, and sticking to it, the second party forces the first party to make a reasonable offer. Since the first party assumes that the second party will do this, (s)he will generally make a reasonable offer.

Now let's look at what the first party should do. If (s)he offers half, virtually anybody would accept the offer, because it is obviously fair. So the expected return to the first party is 50% of the total.

If the first party offers 25%, the researchers have told us that it will be turned down 4 out of 5 times. This makes an expected return for the first party of 20% of 75%, which is 15%.

It doesn't take a rocket scientist to see that for the first party to offer half, and the second party to accept no less than half, is close to an optimal strategy for both.

Most people will intuitively understand this, even if they don't know game theory, and are unable to work out the math in detail.

The researchers didn't give us this information, but I would expect that the first parties offering half obtained the highest average return.

They couldn't gather the same information about the second parties, because they don't know what each might have done, if a different offer had been made.

[3niner]

I forgot to mention, in my long response, that this is an invalid experiment. There may be someting to the idea of "neuro-economics", but this experiment won't show it, because the most rational / least emotional test subjects will react in a manner that is very different from what the researchers expect. (The experiment is simply meaningless for its intended purpose.)

[3niner]

I didn't read your response until after I wrote my own. It is interesting that you and I reached exactly the same conclusion in two very different ways. My analysis involved game theory, while your's was philosophical, in fact your analysis might be called philosophical economics.

Interestingly, both decision making methods are completely valid, and lead to the same strategy. This probably increases the likelihood of a person choosing the optimal strategy.

These "economists" are really clueless, I'm sure that neither Tom Sowell or Walter Williams would ever make this kind of mistake.

[GSlob]

Hmm, I liked this bit: "[scientist showed] that our choices can be changed when a critical part of the brain is switched off with magnets. The researchers, ... used a technique called transcranial magnetic stimulation to tire out and thus temporarily suppress a part of the brain called the dorsolateral prefrontal cortex (DLPFC)."
I once tried an amateur experiment of timing the mental processes like multiplications of two- or three digit numbers with and without a large horseshoe magnet placed near the crown of the head, but without the subject knowing it [blind experiment]. Magnetic field slowed things a bit, and they used it for stimulation.