The economists teamed with psychologists at Stanford to turn an M.R.I. machine into a shopping mall. They gave each experimental subject $40 in cash and offered the chance to buy dozens of gadgets, appliances, books, DVDs and assorted tchotchkes. Lying inside the scanner, first you’d see a picture of a product. Next you’d see its price, which was about 75 percent below retail. Then you’d choose whether or not you’d like a chance to buy it. Afterward, the researchers randomly chose a couple of items from their mall, and if you had said yes to either one, you bought it; otherwise you went home with the cash.
The good news, for behavioral science, was that the researchers saw telltale patterns, which they report in the Jan. 4 issue of the journal Neuron. “We were frankly shocked at how clear the results were,” said Brian Knutson, the Stanford psychologist who led the experiment. “It was amazing to be able to see brain activity seconds before a decision and predict whether the person would buy it or not.”
The first was my nucleus accumbens, a region of the brain with dopamine receptors that are activated when you experience or anticipate something pleasant, like making money or drinking something tasty. In the experimental subjects at Stanford, this region was activated when they first saw pictures of things they wanted to buy. My nucleus accumbens just happened to respond more strongly than the typical subject’s, so what else could I do? If it feels good, buy it.
The other culprit — the main villain, really — was my insula. This region of the brain is activated when you smell something bad, see a disgusting picture or anticipate a painful shock. It was typically activated in the brains of the other shoppers when they saw a price that seemed too high. I’d like to think of my insula as particularly stoic, the strong, silent type, but he’s probably just an oblivious slob.
This data shouldn’t be too surprising. There’s an extended literature documenting the insula’s aversion to losses (like paying for a good), and the nucleus accumbens (NAcc) has long been a card-carrying member of the dopamine-reward pathway. (Whenever we expect a reward, the NAcc floods our mid-brain with neurotransmitter.) This study also extends the dual process model, which is quickly becoming the unifying theory of neuroeconomics. According to this model, our behavior depends upon the interaction of two (or more) antagonistic decision-making systems. At any given moment, one part of our brain is busy evaluating costs and losses, while the other part of our brain is monitoring expected gains. Sometimes, these conflicting approaches can be divided into “rational” (mPFC, etc.) and emotional (amygdala, insula, NAcc, etc.) brain areas. But often, the tension is entirely emotional, as in the case of shopping. Our decisions often depend entirely upon our feelings. (There’s a long history of neurological patients who have suffered injuries to their “emotional” brain systems, and are thus unable to make “rational” decisions. As David Hume put it, “reason is, and ought to be, the slave of the passions.” He was right.)
Of course, this is yet more evidence that the classical assumptions of economics are entirely false. Instead of being wired to maximize income (we are supposed to be selfish and rational), our mind contains a collection of competing and contradictory parts that are suffused with emotion. Our decisions emerge from this mosaic of neural activity. To borrow a metaphor from Isaiah Berlin, if economists believe that we think like the hedgehog – we always fall back on the same strategy of selfish rationality – neuroeconomists have discovered that we actually think like the fox, and employ different strategies in different circumstances.
Personally, I was most surprised by what the Knutson/Loewenstein study didn’t see. Unlike other decision-making studies, they didn’t detect activation in the orbitofrontal cortex, the anterior cingulate cortex, or the parietal cortex. The authors excuse this anomaly by noting that their experiment didn’t involve any learning, and that the ACC and other parts of the prefrontal cortex are most activated during decision-making tasks that force people to take new information into account. Shopping, apparently, has zero educational value. (But I was still surprised to not see the ACC, especially since it is often activated by “mental conflict,” such as mediating between situations that generate both “loss” and “gain” signals.)
Those minor caveats aside, I hope this study is read by economists and policy makers eager to increase the anemic savings rate of Americans. As the authors note, credit cards take advantage of our brain, since they minimize the activation of the insula:
With respect to economic theory, the findings support the historical notion that individuals have immediate affective reactions to potential gain and loss, which serve as inputs into decisions about whether or not to purchase a product (Kuhnen and Knutson, 2005). This finding has implications for understanding behavioral anomalies, such as consumers’ growing tendency to overspend and under-save when purchasing with credit cards rather than cash. Specifically, the abstract nature of credit coupled with deferred payment may ”anaesthetize” consumers against the pain of paying (Prelec and Loewenstein, 1998). Neuroeconomic findings thus might eventually suggest methods of restructuring institutional incentives to facilitate increased saving.