Neuroeconomic Perspectives for Economics

Neuroeconomic Perspectives for Economics

Torben Larsen (University of Southern Denmark, Denmark)
DOI: 10.4018/978-1-7998-3473-1.ch012
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Abstract

Neoliberalism is based on the economic rationality of economic agents, but both cognitive shortcomings and emotional biases in economics decision-making are well documented. A neuroeconomic model (NeM) comprising seven different nodes in a client-server-integrator system (cybernetics of the second order) presents a new approach to behavioral economics focusing risk-preference. The way that individual characteristics influence economic decisions depends on personality. Some people are principally pragmatic with little preference for risk, some are more rational with a moderate approach to risk and some enjoy risk. These people are identified respectively as Pragmatics, Rationalists and Explorers. The rapid rise of explorative behavior is the core of the creative class. Three macroeconomic focus points are outlined: 1) Equality by Universal Basic Income, 2) Environmental protection by Carbon Emission Tax, and 3) Individualized stress-management. In-all, neuroeconomics calls for center-based macroeconomic alternatives to the ruling Neoliberalism e. g. social liberalism or social democracy.
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Background

Medline, PsychInfo and EconLit are searched for neuroeconomic studies of “Emotional Bias in Economic Decision-making. At this early stage Medline has registered a broad selection of existing literature on neuroeconomics. Table 1 presents 10 projects representing a diversity of economic domains. Emotional biases define as deviations from perfect integration of emotional preferences and rational reasoning assumed in Paretian optimization (1906). Emotional biases are classified according to type (Fear-based or Passionate biases in accordance with Luo and Yu, 2015).

Table 1.
Evidence on Emotional Biases in Economic Decision-Making
AuthorDomainType of Bias
Fear-basedPassionate
Galbraith 1958
Erk et al. 2002
Advertising
fMRI of responses to Cultural Symbols
Over-consumption
Galbraith 1967
Goel et al. 2006
US Postwar Top-managementComplacency
Kahneman & Tversky 1979 Economic CrisisLoss Aversion
Gountas & Corciari 2010Consumer behaviorPragmatismImagination
Dohmen et al. 2012
Frey et al. 2017
Social Distribution of General Risk Attitude
Reliability and Validity of Risk-preference
Score 0-4: 47%Score 6-10: 31%
Luo and Yu 2015 Review of Economic PsychologyReduced CognitionExaggerated emotion
Larsen 2017 Review of fMRI of Economic ChoiceRisk-avertersRisk-lovers

Key Terms in this Chapter

Neuroeconomics: An interdisciplinary approach to behavioral science between economics, neurology, and psychology.

Third Party Effects: Positive or negative effects of economic transactions on persons that are not directly involved.

Stress-Management: User-driven healthcare to improve mental health e.g. physical exercise, diet and deep relaxation.

Risk-Aversion: An automatic response in the fear network—centering Amygdala—to salient stimuli.

Risk-Preference: Value function of economic agents formed by reward-seeking, cognitive activity, and risk-aversion. It is graded as strong, moderate, or weak and operated respectively as Explorers, Rationalists, or Pragmatics.

Macroeconomics: The study of key factors in aggregate economy, for example, multiplicators, to guide politicians.

UBI: Basic unconditioned subsidy to all adult citizens corresponding to 50% of net median income.

Pigou Tax: Tax on negative third-party effects, e.g. pollution, corresponding to the costs of the society.

Human Capital: The aggregate of human Know-How on production, is operated by UNESCO as an index pf education.

Behavioral Economics: The study of the effects of psychological, cognitive, emotional, cultural and social factors on. economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.

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