From economics prof Robert J. Shiller, “The Neuroeconomics Revolution” (Project Syndicate),
Much of modern economic and financial theory is based on the assumption that people are rational, and thus that they systematically maximize their own happiness, or as economists call it, their “utility.” When Samuelson took on the subject in his 1947 book, he did not look into the brain, but relied instead on “revealed preference.” People’s objectives are revealed only by observing their economic activities. Under Samuelson’s guidance, generations of economists have based their research not on any physical structure underlying thought and behavior, but only on the assumption of rationality.
As a result, Glimcher is skeptical of prevailing economic theory, and is seeking a physical basis for it in the brain. He wants to transform “soft” utility theory into “hard” utility theory by discovering the brain mechanisms that underlie it.
In particular, Glimcher wants to identify brain structures that process key elements of utility theory when people face uncertainty: “(1) subjective value, (2) probability, (3) the product of subjective value and probability (expected subjective value), and (4) a neuro-computational mechanism that selects the element from the choice set that has the highest ‘expected subjective value’…”
Some of us don’t think Samuelson was entirely wrong (these people seldom are entirely wrong), but what appears rational to one person may not appear so to another. These judgments cannot be made properly without individual context, which is precisely what researcher must eliminate in order to get a cohort of subjects.
Prediction: Neuroeconomics will be such a rage for a decade that the local used car dealers’ association will be offering Mitt after dinner slide shows at the monthly chowdown. Then it’ll all collapse because researchers will discover that people’s brains have wired and rewired differently, based on individual experiences.
Mitt’s Fine Used Cars? Well, Mitt’s fine, sure. It’s the cars that have weathered quite the thrilling history, as documented in small claims courts across the region …