How can neuroscience inform economics?
Colin Camerer, George Loewenstein, and Drezen Prelec have produced the longest and most substantive survey article on neuroeconomics to date. For those of you familiar with the basic methods, the punchlines start on p.30.
Neuroeconomists don’t just do brain imaging. Most generally they study how the human nervous system interacts with economic phenomena.
What is the bottom line to neuroeconomics? Does it offer new (and valid) predictions?
Wikipedia makes an ambitious claim:
…neuroeconomics may lead to significant changes in how we educate children, plan finances, manage employees, react to advertising and marketing, elect politicians, regulate government and industries, prove guilt beyond a reasonable doubt, select courtroom juries, monitor terrorist threats, and much more.
Neuroeconomics, in its current state, is most effective at helping adjudicate outstanding normative controversies. Do ads brainwash or inform us? When are savings decisions made on the basis of long-term planning? Which parts of the brain help us choose politicians? Do we allocate money the same way we allocate time? Think of neuroeconomics as a measuring device rather than a new body of theory. Look for better and more reality-tested answers to extant questions, not novel predictions, at least not yet.
Over time neuroeconomics will make our theories less universal and more context-dependent. This development will prove most important for normative economics and policy analysis, where realism is at a premium. If you’re still talking about how Friedman 1953 and how plants maximize received sunlight, neuroeconomics won’t make you very happy.
What I would want most: A testable neuroeconomic theory of why risk premia vary over time in securities markets. But that is very far away.
Here is my earlier post on neuroeconomics, replete with additional links. Here is Randall Parker’s excellent post on Coke vs. Pepsi, as measured by brain imaging.