frauke at large

Money on the Brain – Reviewing a Podcast by BBC Radio 4

As a marketer I often have difficulties accepting the over-simplification of human behaviour and emotions by economists. It was somewhat of a relief therefore when I discovered that economics is moving towards understanding the workings of the human mind and embracing the complexities of human behaviour.

 

Traditionally economics has bypassed looking at how people think and feel and has focused mainly on what it is people do. Simple game theory tasks have provided the backbone of much economic behavioural prediction. Unfortunately, predicting behaviour via these means is still somewhat unreliable. In order to really understand and predict how people behave, all the things that economists thought could be sidestepped, such as hormones, genes and how the brain works, must to be factored in. This is the domain of a new discipline called: Neuroeconomics.

Advocates of this fairly new discipline argue that the problem with traditional economics is that it treats the brain as a black box and ignores what goes on inside it. Traditional economics assumes that people are rational and therefore looking at what people do, is sufficient in predicting their behaviour. However, unfortunately, people lie and deviate from the predictive norm. Therefore, focusing on the processes that go on inside the brain enables economists to account for human irrationality; it helps understand which parts of the brain are involved in decision-making and how variations in brain signals impact on behaviour. This in turn, it is argued, should help improve behavioural predictability.

Several research institutes in New York, Cambridge and Berlin are now using FMRI scanners to analyse brain activity whilst research subjects play traditional economic games, such as the ultimatum game. Indeed they have found that understanding brain activity is a much better predictor of shopping behaviour or trade behaviour during economic booms for example. Increasingly therefore, marketers are also turning to neuroscience in what is coined to be the new domain of Neuromarketing. By looking at people’s brain activity responses to advertising and other marketing activities, researchers can gain an insight into how consumers need to be stimulated in order to increase purchase demand.

So does Neuroeconomics spell the end of traditional economics? Certainly not. Neuroeconomics is a fusion of traditional and behavioural economics and should act as a support, if not as a catalyst, for the review of existing economic models and should help with policy making in areas such as risk management, for example. Furthermore, although Neuroeconomics and Neuromarketing are revolutionising the way we think about people’s decision making processes and behaviours, there is a downside to gaining such an intimate insight into an individual’s behaviour and feelings. FMRI scanners allow an almost complete insight into a person’s mind and it won’t be long until this information will be sought by commercial organisations. There will be a need for detailed policies to protect people from the misuse of their neuroscientific data. We are entering the age of: Neuroprivacy.

P.s. was hoping to bring you the actual podcast, but I think the sound file is too big … am working on it.

 

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