Economics and Cognitive Science

Nudge is a concept of policy intervention that originates in Thaler and Sunstein's (2008) popular eponymous book. Following their own hints, we distinguish three properties of nudge interventions: they redirect individual choices by only slightly altering choice conditions (here nudge 1), they use rationality failures instrumentally (here nudge 2), and they alleviate the unfavourable effects of these failures (here nudge 3). We explore each property in semantic detail and show that no entailment relation holds between them. This calls into question (...) the theoretical unity of nudge, as intended by Thaler and Sunstein and most followers. We eventually recommend pursuing each property separately, both in policy research and at the foundational level. We particularly emphasize the need of reconsidering the respective roles of decision theory and behavioural economics to delineate nudge 2 correctly. The paper differs from most of the literature in focusing on the definitional rather than the normative problems of nudge. (shrink)

I propose a novel model of the human ego (which I define as the tendency to measure one’s value based on extrinsic success rather than intrinsic aptitude or ability). I further propose the conjecture that ego so defined both is a non-adaptive by-product of evolutionary pressures, and has some evolutionary value as an adaptation (protecting self-interest). I explore ramifications of this model, including how it mediates individuals’ reactions to perceived and actual limits of their power, their ability to cope with (...) risk and uncertainty, and how this model may interpolate between rational choice models and cognitive psychology. I develop numerous examples and applications, including poverty traps, to demonstrate the model’s predictive power to elucidate a broad range of social phenomena. -/- [December 2018: Updated version to submit for publication. Expanded Sections 4 and 5.1, revised Section 5.7] -/- . (shrink)

ABSTRACT The past fifteen years or so have witnessed considerable progress in our understanding of how the human brain works. One of the objectives of the fast-growing field of neuroscience is to deepen our knowledge of how the brain perceives and interacts with the external world. Advances in this direction have been made possible by progress in brain imaging techniques and by clinical data obtained from patients with localized brain lesions. A relatively new field within neuroscience is neuroeconomics, which focuses (...) on individual decision making and aims to systematically classify and map the brain activity that correlates with decision-making that pertains to economic choices. Neuroeconomic studies rely heavily on functional magnetic resonance imaging (fMRI), which measures the haemodynamic response (that is, changes in the blood flow) related to neural activity in the brain. (shrink)

No evangelistic erroneous network of ideas can guarantee the satisfaction of these two demands : (1) propagate the network without revision and (2) completely insulate itself against losses in credibility and adherents through criticism. If a network of ideas is false, or inconsistent or fails to solve its intended problem, or unfeasible, or is too costly in terms of necessarily forsaken goals, its acceptability may be undermined given only true assumptions and valid arguments. People prefer to adopt ideologies that (i) (...) are logically consistent, (ii) are more truth-like and of higher information content than their rivals, (iii) are systematically organised, (iv) solve their problems better than their rivals, (v) do not contain unfeasible demands, and (vi) do not contain uneconomic demands. Truth and validity therefore act as Darwinian-like filters on ideologies. Using Popper's notion of situational analysis and with reference to Darwinian evolution, considered as a special case of the former, and Bartley's theory of comprehensively critical rationalism I argue that a propagandist cannot guarantee his message or his movement from sound criticism. All positions are in a methodological sense open to argument. Moreover, the logic of a propagandist's situation constrains him into making his message and himself open to criticism in order to maximize its chances of being propagated through the population. But he then loses control of the message in two respects. Firstly, his audience are disposed to select from the competing ideas they encounter those that satisfy (i) to (vi) because of man's evolutionary history. Secondly, he cannot guarantee protection from criticism even a privileged section of his message because he cannot predict in a systematic way what logical repercussions each protective reformulation of the ideology will have on other sections of the ideology and what criticism the ideology will encounter. He cannot do the latter because of certain logical properties of theories that endow them with unfathomable depths. Marxism and Freudianism serve as case studies, especially for the analysis of Popper's notion of the immunizing stratagem, a methodological/logical device that is supposed to save theories from criticism. "Immunizing stratagems" either abandon the ideology they are meant to protect or seriously lower its chances of being reproduced. (shrink)

Many economic theorists hold that social institutions can lead otherwise irrational agents to approximate the predictions of traditional rational choice theory. But there is little consensus on how institutions do so. I defend an economic internalist account of the institution-actor relationship by explaining economic rationality as a feature of individuals whose decision-making is aided by institutional structures. This approach, known as the subjective transaction costs theory, represents apparently irrational behavior as a rational response to high subjective transaction costs of thinking (...) and deciding. The theory has two attractive features. First, it reconciles rational choice theory with the increasing body of evidence cataloguing putative errors in economic decision-making. Second, it vindicates the explanatory power of individual choice against externalist challenges; the subjective transaction costs theory keeps economic rationality in the head. (shrink)

This is a review article of Ross (2005), a book which attempts to show the implications of cognitive science and economics for each other. Ross makes neoclassical economics central to the unification of the behavioural sciences, and defends its fundamental health against its critics. He locates the source of the empirical and conceptual problems besetting neoclassical economics in the mistaken assumption that the economic agents neoclassicism talks about refer directly to real, whole people. Ross argues that people are atypical as (...) economic agents; bugs and other non-social animals are much more typical, and neoclassical economics applies to them in a straightforward way. How then does economics apply to the atypical agents that people are? Ross’s answer builds on Ainslie (2001), who models people as being the result of strategic interactions between successive economic agents, and on Glimcher’s (2003) work on the neuroeconomics of game playing in monkeys which, Ross argues, can be extrapolated to humans. The author is impressed by the boldness of Ross’s vision, and the arguments offered to support it. However, doubts remain about Ross’s theory of the self, the lifespan of the proposed successive economic agents out of which real people are composed, the implicit suggestion that in economics approximations can be overcome, and finally the conclusiveness of Ross’s case against the need for revolutionary reappraisals of neoclassical economics. (shrink)

So far, the methodological debate about neuroeconomics rarely refers to original methodological positions in the neurosciences. I confront one of the most influential ones, the constitutive explanations or mechanism approach, with methodological claims that directly relate the economic model of choice with neuronal embodiments, represented by Glimcher’s influential work. Constitutive explanations are composite and non-reductionist, therefore allow for recognizing complex causal interactions between basal neuronal phenomena and cognitive structures, also involving external symbolic media. I demonstrate the power of this methodology (...) in discussing the example of money, which Glimcher posits as one of the most important research tasks in further developing neuroeconomics. Whereas Glimcher justifies neuroscientific reductionism by presenting an evolutionary rationale for deploying formal economic models on particular modules enabling choice, the case of money reveals the need for mechanistic explanations that include a substantial role for cultural evolution, though recognizing causal interactions with basal neuronal mechanisms. (shrink)

Natural resources are infinite. This is possible because humans can create theories whose potential goes beyond the limited imaginative capacity of the inventor. For instance, no number of people can work out all the economic potential of quantum theory. Economic Resources are created by an interaction of Karl Popper's Worlds 1, 2 and 3, the worlds of physics, psychology and the abstract products of the human mind, such as scientific theories. Knowledge such as scientific theories has unfathomable information content, is (...) universally applicable, and infinitely copyable. The point can be made with technological knowledge such as that embodied in the wheel. The theory of the wheel has un- bounded potential to be embodied in unforeseeable new technologies, is useful on the Moon as on Earth, and can be infinitely copied. Unlike a piece of land (using fixed factors), such knowledge shows increasing returns. This helps to explain Julian Simon's observation that "natural" resources are now less scarce than they used to be and why an increasing population can increase resources in the long-run. It was Simon's breakthrough to elaborate on the abstract character of "natural" resources. I further explore this abstract character and thereby explain why natural resources are infinitely expandable. Economic growth and the creation of natural resources depends on the rate of invention. F. Machlup's suggestion (Machlup 1962) that the opportunity for new inventions increases geometrically with the number of inventions at hand is acknowledged for its suggestiveness, but criticised for its conservative position. Frank Tipler's fascinating argument for indefinite economic growth (Tipler 1994), is reinforced by my argument by making a distinction between information in the engineer's sense and the infinite potential "information" in our scientific knowledge based on Popper's notion of information content. (shrink)

There continues to be significant confusion about the goals, scope, and nature of modelling practice in neuroeconomics. This article aims to dispel some such confusion by using one of the most recent critiques of neuroeconomic modelling as a foil. The article argues for two claims. First, currently, for at least some economic model of choice behaviour, the benefits derivable from neurally informing an economic model do not involve special tractability costs. Second, modelling in neuroeconomics is best understood within Marr’s three-level (...) of analysis framework and in light of a co-evolutionary research ideology. The first claim is established by elucidating the relationship between the tractability of a model, its descriptive accuracy, and its number of variables. The second claim relies on an explanation of what it can take to neurally inform an economic model of choice behaviour. 1 Introduction2 Neurally Informed Models of Choice: A Case Study2.1 A case study on risk-sensitive choice2.1.1 Target and modelling framework2.1.2 Research question and hypotheses2.1.3 Competitive models of risk-sensitive behaviour2.1.4 Model-based fMRI: from economics to brains and back2.2 Neurally informed modelling3 Tractability: When Does Size Matter?4 Neural Integration and the Co-evolutionary Research Ideology5 Conclusion. (shrink)

Over the last decade, neuroeconomic research has attracted increasing attention by economic modellers and methodologists. In this paper, I examine five issues about neuroeconomic modelling and methodology that have recently been subject to considerable controversy. For each issue, I explicate and appraise prominent neuroeconomists' findings, focusing on those that are claimed to directly inform economic theorizing. Moreover, I assess often-made assertions concerning how neuroeconomic research putatively advances the economic modelling of choice. In doing so, I combine review and critical arguments (...) to provide a methodological evaluation of neuroeconomists' contributions. (shrink)

Recent work in the behavioral sciences asserts that we are subject to a variety of cognitive biases. For example, we mourn losses more than we prize equivalently sized gains; we are more inclined to believe something if it matches our previous beliefs; and we even relate more warmly or coldly to others depending on whether the coffee cup we are holding is warm or cold. Drawing on this work, case law and legal scholarship have asserted that we have reason to (...) select legal norms, or revise existing norms, so as to eliminate the influence of these and other cognitive biases. -/- In this Article, I critically evaluate whether and when this reaction is warranted. I begin by contrasting predominantly descriptive definitions of bias, on which bias is merely deviation from a predictive model, with prescriptive definition of bias, on which biased conduct is conduct that actors ought not do. I then similarly contrast the behavioral-scientific concepts of statistical significance and effect size with the concept of significance required to justify legal conclusions. -/- With this apparatus in place, I go on to consider a variety of examples where legal commentators and decisionmakers have worried about the effects of cognitive bias on law. I argue that many of these cognitive biases (for example, our aversion to losses), while reflecting deviations from behavioral scientists’ models of human behavior, are not normatively objectionable and so give us no reason to revise our legal norms to eliminate their effect. Others (e.g., the effect of judges’ hunger on their decisionmaking), however, constitute biases under both descriptive and prescriptive definitions and therefore give us good reason to revise our legal norms. -/- I conclude by contrasting my conclusion — that evaluation of cognitive biases’ legal significance must explicitly evaluate the normative arguments for and against the model of decisionmaking in question on a case-by-case basis — with the arguments of influential scientists and legal commentators like Daniel Kahneman and John Mikhail, who treat cognitive heuristics and biases as more broadly desirable or objectionable. (shrink)

Abstract: Don Ross’ Economic Theory and Cognitive Science (2005) provides an elaborate philosophical defense of neoclassical economics. He argues that the central features of neoclassical theory are associated with what he calls the Robbins-Samuelson argument pattern and that it can be reconciled with recent developments in experimental and behavioral economics, as well as contemporary cognitive science. This paper argues that Ross’ Robbins-Samuelson argument pattern is not in the work of either Robbins or Samuelson and in many ways is in conflict (...) with their own versions, and defenses, of neoclassical theory. (shrink)

Alexander Rosenberg (1983) has argued, contrary to his previous work in the philosophy of economics, that economics is not science, and it is merely mathematics. The following paper argues that Rosenberg fails to demonstrate either of these two claims. The questions of the predictive weakness of modern economics and the cognitive standing of abstract economic theory are discussed in detail.

The data of Henrich et al., when combined with other research, suggest that sharing behavior probably varies systematically across cultures, situations, and individuals. Economic policies founded on recognition of this “radical contingency” would, I argue, nurture economic pluralism rather than attempting to bring the world under one system.

I criticise, from a critical rationalist perspective, Israel Kirzner's notion of entrepreneurial alertness and Matthew McCaffrey's endorsement of Joseph Salerno's rival account of entrepreneurial judgment.

Neuroeconomics has found no definitive role in the explanation of consumer choice and its undeveloped philosophical basis limits its attempt to explain economic behaviour. The nature of neuroeconomics is explored, especially with respect to what it reveals about the valuation of alternatives, choice and emotion. The tendency of human consumers to discount future rewards illustrates how behavioural and neuroscientific accounts of choice contribute to psychological explanations of choice and the issues this raises for both routine everyday choices and more extreme (...) compulsions. Central to this is the phenomenon of matching in which consumers tend to select the immediately larger or largest reward and the neurophysiological and behavioural bases of this choice. Recognition that rewards are evoked by reinforcement contingencies and that the rewards themselves engender emotional responses via classical conditioning enhances understanding the contribution of neurological activity to the explanation of consumer behaviour. It is argued that neuroeconomics can play a vital explanatory role by providing an evolutionarily consistent warrant for the ascription of intentionality. The Behavioural Perspective Model is used as a template for investigations of consumer choice that lead to iterative theoretical development, forming the basis of a neurophilosophy in which neuroeconomics can find a decisive role. (shrink)

My brand of evolutionary economics recognizes, highlights, that modern economies are always in the process of changing, never fully at rest, with much of the energy coming from innovation. This perspective obviously draws a lot from Schumpeter. Continuing innovation, and the creative destruction that innovation engenders, is driving the system. There are winners and losers in the process, but generally the changes can be regarded as progress. The processes through which economic activity and performance evolve has a lot in common (...) with evolution in biology. In particular, at any time the economy is marked by considerable variety, there are selection forces winnowing on that variety, but also continuing emergence of new ways of doing things and often economic actors. But there also are important differences from biological evolution. In particular, both innovation and selection are to a considerable degree purposive activities, often undertaken on the basis of relatively strong knowledge. (shrink)

This paper provides a historical overview of cognitive psychology and computational theories in cognitive science. Critiques of the computational model are discussed. The perspective of the evolution of mind and brain provides an alternative model such as that presented by Merlin Donald in terms of the “Hybrid Mind.” This “naturalist” model is also consistent with what we know of cognitive development in childhood. It provides a better understanding of cognition in situated context than the computational alternatives and is a better (...) fit as a model of mind for the social sciences, including for economic decision making. (shrink)

(2010). ‘Neuroeconomics: hype or hope?’. Journal of Economic Methodology: Vol. 17, Neuroeconomics: Hype or Hope?, pp. 103-106. doi: 10.1080/13501781003756667.

Journal of Economic Methodology, Volume 19, Issue 1, Page 81-84, March 2012.

Many recent developments in artificial intelligence research are relevant for traditional issues in the philosophy of science. One of the developments in AI research we want to focus on in this article is diagnostic reasoning, which we consider to be of interest for the theory of explanation in general and for an understanding of explanatory arguments in economic science in particular. Usually, explanation is primarily discussed in terms of deductive inferences in classical logic. However, in recent AI research it is (...) observed that a diagnostic explanation is actually quite different from deductive reasoning. In diagnostic reasoning the emphasis is on restoring consistency rather than on deduction. Intuitively speaking, the problem diagnostic reasoning is concerned with is the following. Consider a description of a system in which the normal behavior of the system is characterized and an observation that conflicts with this normal behavior. The diagnostic problem is to determine which of the components of the system can, when assumed to be functioning abnormally, account for the conflicting observation. A diagnosis is a set of allegedly malfunctioning components that can be used to restore the consistency of the system description and the observation. In this article, this kind of reasoning is formalized and we show its importance for the theory of explanation. We will show how the diagnosis nondeductively explains the discrepancy between the observed and the correct system behavior. The article also shows the relevance of the subject for real scientific arguments by showing that examples of diagnostic reasoning can be found in Friedman's Theory of the Consumption Function. Moreover, it places the philosophical implications of diagnostic reasoning in the context of Mill's aprioristic methodology. (shrink)

In understanding economics and the organisation of economics, the questions are what constituteeconomics and the thinking behind economics today? In short what is the field of economics? And in what ways can we connect to and understand this field of study? Of course, the answer to this depends upon the perspective chosen, in which one sees and thinks of economics from a particular philosophical and even political position and perspective. If one takes the perspective on economics from a qualitative paradigm (...) that draws upon the tradition from Kant, Husserl, Simmel, Mead, Schutz, Blumer, then it can be stated that economics cannot only be understood as something that appears in nature. On the contrary, economics must be understood as “something” which results from human behaviour, interaction and groups in human activities and the thinking involved and embedded in those activities. Therefore in analyzing economics it is significant to note that economics belongs to and is being constructed by people due to their everyday lives. What appears as central in those statements, from a qualitative perspective, is that the essences of economics have to be discussed in relation to the mind and thinking related to an understanding of individual and group societal activities. Economics is to be understood as constructed and maintained through everyday human interactions and exchanges, whereby people are creating the meanings of situations with objectives of what are believed as important in the understanding of economics activities, actions and results. Those meanings and definitions of economics are being produced and exchanged in order to become a new comprehensive framework that influences, co-produces, limits and creates contradictions in everyday economic life. This additional qualitative focus [1] outlines the importance of understanding how human cognitions produce meaning of objects, definitions, activities and actions which provides the framework for the field of economics. The epistemological perspective for this is that the objects are not only within themselves.No, instead the objects are as they presents themselves to people, and thereby the meanings we are constructing and attaching to them. The paper will therefore discuss some of the scientific complexities in three areas: mind and thinking; understanding economics as a social activity and construction, and the interplay between economic activities and economic theoretical work. (shrink)

There is “something more” to money, as this incisive review shows. The target article's shortcoming is its overextension of the “drug” metaphor as a blend of features that do not fit the rationalistic economics and behavioral psychologies summarized as tool theories, but this may be resolved by viewing money as a particular case of the more general evolutionary phenomenon of emergent subsystem autonomy. (Published Online April 5 2006).

Advocates of neuroeconomics sometimes argue that one of the most surprising findings in neuroeconomic studies is that expected utilities are literally computed in the brain. This claim is scrutinized closely in the paper. Not surprisingly, the tenability of the claim is shown to depend critically on what is meant by ?literal computation? and ?surprising?. It is argued that the findings do not show that expected utilities are literally computed, if by ?literal computation? we mean a particular kind of mental activity (...) (namely, deliberate choice). It is also argued that the findings do not lend empirical support to expected utility theory, if that theory is taken to be a theory about individual and aggregate behavior. Findings that in some particular tasks expected utility theory predicts neural activity fairly accurately do not imply that expected utility theory also yields accurate predictions of behavior at ?higher levels?, individual behavior and aggregate behavior. What the findings do suggest, it is argued, is that expected utility theory is useful for understanding decision-making at the neural level. Once one accepts that expected utility theory provides a potentially fruitful tool for predicting neural activity in neurobiology, the findings cease to be surprising. (shrink)

Contrary to what is claimed by Gul and Pesendorfer (2008), in this paper I argue that neuroscience and economics can meet in ways that speak to the interests of economists. As Bernheim (2009) argues, economists seem to be primarily interested in novel models that link ?traditional? environmental variables (such as prices and taxes) to choice behavior in a more accurate way than existing models. Neuroscience might be helpful here, since especially computational neuroscience is also in the business of mapping environmental (...) variables on to behavior. Given that experimental findings seem to show that choice behavior displays great context-sensitivity, I discuss two tentative ways in which neuroscience might be helpful. Neuroscience might be able to identify a multitude of environmental variables and the choice algorithms in the brain that they activate. Going this way might lead to novel models that differ markedly from standard economic models. Alternatively, neuroscience might be able to provide more theoretical guidance as to how individuals model the situations they are in. In principle, this route might leave standard economic models largely intact while improving their predictive record. (shrink)

Neuroeconomics illustrates our deepening descent into the details of individual cognition. This descent is guided by the implicit assumption that is the important of neoclassical economics. I argue here that this assumption is neither obviously correct, nor of primary importance to human economies. In particular I suggest that the main genius of the human species lies with its ability to distribute cognition across individuals, and to incrementally accumulate physical and social cognitive artifacts that largely obviate the innate biological limitations of (...) individuals. If this is largely why our economies grow, then we should be much more interested in distributed cognition in human groups, and correspondingly less interested in individual cognition. We should also be much more interested in the cultural accumulation of cognitive artefacts: computational devices and media, social structures and economic institutions. (shrink)

In this short note I speculate about the various ways in which the study of neurological aspects of decision making could be fruitful for economic modelling.

Two roles of experiments in behavioural economics are distinguished ? experiments as exhibits and experiments as tests of theories. An exhibit is an experimental design which reliably induces a surprising regularity, typically combined with an informal hypothesis about the underlying causal mechanism. ?Deviation theories? ? generalisations of received theories which incorporate additional causal mechanisms ? are constructed so as to be consistent with known exhibits, and tested in new situations. The paper argues that the principles of good practice are different (...) for the two types of experiment, in part because of a tendency for successful exhibits to be produced by several causal mechanisms. (shrink)

In his recent book, Economics – Mathematical Politics or Science of Diminishing Returns, Alexander Rosenberg has offered a forceful critique of the scientific pretensions of economics. I am encouraged to note that in his JEL review, Wade Hands singles out Rosenberg's ‘important discussion of intentionality’ as one of the most significant aspects of the book. Encouraged, because this was exactly my impression, and Hands's judgment confirmed my intention to respond to Rosenberg's argument. I hope, however, to be able to disappoint (...) Hands's expectation that this aspect of Rosenberg's work ‘will be least challenged by economists’! (shrink)

In this paper, we examine different forms of altruism. We commence by analysing the definition and, after clarifying its conditions for altruism, we argue that it is not in with everyday linguistic usage of the term. We therefore consider a definition, which we likewise refine, and argue that it better reflects ordinary language use. Both behavioural and psychological approaches define altruism descriptively and thus fail to capture an important aspect of altruism, namely its normative component. Altruism, we argue, is a, (...) i.e. one which embodies both positive and normative components. We discuss and compare various formulations of this normative component. (shrink)

Gul and Pesendorfer provide the best-known and most strident of a set of recent backlashes by economists against methodological revolutions promoted by some behavioural economists and neuroeconomists. Philosophers are likely to read these responses as merely reactionary, especially as their rhetoric goes beyond what their explicit argumentation validly supports. The present paper identifies the accurate insight on Gul and Pesendorfer's part that explains the impact of their philosophically ragged polemic. This centers on importantly different concepts of choice in the psychological (...) and economic literatures. The psychologist's idea of choice descends from a culturally familiar folk construct generally thought to lie within everyone's unreflective personal acquantance. By contrast, the economist's concept of choice refers to abstract sensitivity of behavioral patterns to changes in incentives, typically at the statistical level of populations. It is reasonable to regard this abstract idea as the basic subject matter of economics, just as Gul and Pesendorfer assert. Appreciating the difference between psychological choice and economic choice is crucial for understanding the methodologically schizophrenic character of neuroeconomics. Much of it merely identifies neural correlates of elements from models in the psychology of valuation. However, the neuroeconomics worthy of the name, as constructed by Glimcher and his collaborators, aims to unify economics and neuroscience. It so far fails to do so in an entirely satisfactory way because it falsely assumes that the conception of choice in psychology and economics is already shared. (shrink)

Neuroeconomics is examined critically using data on the response times of subjects who were asked to express their preferences in the context of the Allais Paradox. Different patterns of choice are found among the fast and slow responders. This suggests that we try to identify types of economic agents by the time they take to make their choices. Nevertheless, it is argued that it is far from clear if and how neuroeconomics will change economics.

I distinguish between two styles of research that are both called . Neurocellular economics (NE) uses the modelling techniques and mathematics of economics to model relatively encapsulated functional parts of brains. This approach rests upon the fact that brains are, like markets, massively distributed information-processing networks over which executive systems can exert only limited and imperfect governance. Harrison's (2008) deepest criticisms of neuroeconomics do not apply to NE. However, the more famous style of neuroeconomics is behavioural economics in the scanner. (...) This is often motivated by complaints about conventional economics frequently heard from behavioural economists. It attempts to use neuroimaging data to justify arguments for replacing standard aspects of microeconomic theory by facts and conjectures about human psychology. Harrison's grounds for unease about neuroeconomics apply to most BES, or at least to its explicit methodology. This methodology is naively reductionist and illegitimately assumes that economics should not do what all successful science does, namely, model abstract aspects of its target phenomena instead of would-be complete and fully ecologically situated facsimiles of them. (shrink)

As an emerging discipline, neuroeconomics faces considerable methodological and practical challenges. In this paper, I suggest that these challenges can be understood by exploring the similarities and dissimilarities between the emergence of neuroeconomics and the emergence of cognitive and computational neuroscience two decades ago. From these parallels, I suggest the major challenge facing theory formation in the neural and behavioural sciences is that of being under-constrained by data, making a detailed understanding of physical implementation necessary for theory construction in neuroeconomics. (...) Rather than following a top-down strategy, neuroeconomists should be pragmatic in the use of available data from animal models, information regarding neural pathways and projections, computational models of neural function, functional imaging and behavioural data. By providing convergent evidence across multiple levels of organization, neuroeconomics will have its most promising prospects of success. (shrink)

Neuroeconomics is the newest of the economic sciences with a focus on how the embodied human brain interacts with its institutional and social environment to make economic decisions. This paper presents an overview of neuroeconomics methods and reviews a number of results in this emerging field of study.

Cruelty does not emerge from a single emotional system of the brain. Its many cognitive aspects are intermeshed inextricably with the nature of negative affects ranging from fear to suffering. The rewards of cruelty may be counteracted by a variety of neurochemical factors as well as novel social policies.

The paper criticises psychologism, i.e. the idea that economics is a science of behaviour or that it must be rooted in such a science. The argument is based on Hayek and Popper's thesis that economics studies spontaneous order. First, it is argued that if economics is to retain its traditional distance from psychology, it has to abandon the notion that it is concerned with behaviour. Then it is shown that there is no simple one-way causation from the psychological to the (...) social and that the study of spontaneous order must be non-psychological. Further, an attempt is made to clarify some misunderstandings about the concept of spontaneous order and the differences between psychologism and methodological individualism. Finally, it is suggested that the difference between the psychological and the social can be described conveniently in Popperian terms as the difference between the ?World 2? and ?World 3? phenomena. (shrink)

Neuroeconomic studies are liable to fall into the reverse inference fallacy, a form of affirmation of the consequent. More generally neuroeconomics relies on two problematic steps, namely the inference from brain activities to the engagement of cognitive processes in experimental tasks, and the presupposition that such inferred cognitive processes are relevant to economic theorizing. The first step only constitutes the reverse inference fallacy proper and ways to correct it include a better sense of the neural response selectivity of the targeted (...) brain areas and a better definition of relevant cognitive ontologies for neuroeconomics. This second way also allows increased coherence between the cognitive processes actually involved in neuroeconomics experiments and the theoretical constructs of economics. We suggest means of increasing neural response selectivity in neuroeconomic experimental paradigms. We also discuss how the choice of cognitive ontologies can both avoid implicit reductionist strategies (from economic constructs to neural patterns) and irrelevance, as cognitive processes engaged in experimental tasks may lack immediate bearing on the study of economic behavior. With these joint improvements neuroeconomics can be a progressive science. (shrink)

Rosenberg claims that economics must use the 'intentional idiom' for its explanatory strategies. We examine whether scientific articles in financial economics do in fact ascribe propositional attitudes to economic agents. We look at articles in the Journal of Finance , volume 54 (1999), where we find a total of 250 502 words in 29 articles. The total number of ascriptions of the intentional states of belief, desire, expectation or preference to economic agents is 137, with 26 of 29 articles making (...) 10 or fewer ascriptions. We propose other areas where intentionality might be found in these articles. (shrink)

C. Howson’s probabilistic logic as a comprehensive methodological account of scientific inference, which avoids Hume’s inductive skepticism, is discussed against the background of the latter’s quantitative theory of money. Hume’s theory leads to two causal accounts that may appear to be contradictory. As the more general one suggests neutrality of money, while the more descriptive attributes causal influence to specie-flow mechanism of money. The former is grounded by a counterfactual reasoning. The discussion of recent examples of bayesian counterfactual models leads (...) to the conclusion that despite the possibility of a uniform account of Hume’s theory of money, it seems beyond the scope of the Bayesian probabilistic logic offered by Howson. (shrink)

Existing economic models of prosociality have been rather silent in terms of proximate psychological mechanisms. We nevertheless identify the psychologically most informed accounts and offer a critical discussion of their hypotheses for the proximate psychological explanations. Based on convergent evidence from several fields of research, we argue that there nevertheless is a more plausible alternative proximate account available: the social motivation hypothesis. The hypothesis represents a more basic explanation of the appeal of prosocial behavior, which is in terms of anticipated (...) social rewards. We also argue in favor of our own social motivation hypothesis over Robert Sugden’s fellow-feeling account (due originally to Adam Smith). We suggest that social motivation not only stands as a proximate account in its own right but also provides a plausible scaffold for other more sophisticated motivations (e.g., fellow-feelings). We conclude by discussing some possible implications of the social motivation hypothesis on existing modeling practice. (shrink)

Abstract A number of empirical literatures in economics display the following pattern of results. First, evidence accumulates to support an empirical result. As time passes, however, contrary results emerge that challenge that initial result. This phenomenon raises important issues about (i) what part empirical findings play in how economists come to believe things; and (ii) how believable inferences are to be made from literatures displaying such contrary results. This paper documents this ?emerging contrary result? phenomenon, and investigates the factors causing (...) it. It considerably expands the list of emerging contrary results contained in my 1995 JEM paper. Of more importance, this paper identifies alternative explanations for these instances, and explores whether particular explanations can be plausibly assigned to the 26 examples in this paper. (shrink)

According to John Searle's theory of human ontology, intentional mental states such as beliefs and wants rely on non-intentional, Background, dispositions to produce rational behaviour. The distinction between intentional and non-intentional states is used as the basis on which to understand the various conceptions of human agency to be found in behavioural finance. The agent of behavioural finance is characterized in terms of three sets of psychological traits: prospect theory, heuristics and mental accounting. These are examined from a Searlean perspective (...) and shown to rely on the interplay between various reflected upon and non-reflected upon elements, in keeping with the Searlean human ontology previously considered. A number of implications are drawn from these findings. (shrink)

A framing effect occurs when an agent's choices are not invariant under changes in the way a decision problem is presented, e.g. changes in the way options are described (violation of description invariance) or preferences are elicited (violation of procedure invariance). Here we identify those rationality violations that underlie framing effects. We attribute to the agent a sequential decision process in which a “target” proposition and several “background” propositions are considered. We suggest that the agent exhibits a framing effect if (...) and only if two conditions are met. First, different presentations of the decision problem lead the agent to consider the propositions in a different order (the empirical condition). Second, different such “decision paths” lead to different decisions on the target proposition (the logical condition). The second condition holds when the agent's initial dispositions on the propositions are “implicitly inconsistent,” which may be caused by violations of “deductive closure.” Our account is consistent with some observations made by psychologists and provides a unified framework for explaining violations of description and procedure invariance. (shrink)

On the orthodox view in economics, interpersonal comparisons of utility are not empirically meaningful, and "hence" impossible. To reassess this view, this paper draws on the parallels between the problem of interpersonal comparisons of utility and the problem of translation of linguistic meaning, as explored by Quine. I discuss several cases of what the empirical evidence for interpersonal comparisonsof utility might be and show that, even on the strongest of these, interpersonal comparisons are empirically underdetermined and, if we also deny (...) any appropriate truth of the matter, indeterminate. However, the underdetermination can be broken non-arbitrarily (though not purely empirically) if (i) we assign normative significance to certain states of affairs or (ii) we posit a fixed connection between certain empirically observable proxies and utility. I conclude that, even if interpersonal comparisons are not empirically meaningful, they are not in principle impossible. (shrink)