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Neuroeconomics: Why Economics Needs Brains

In: Business and Management

Submitted By Mikiyo0623
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Neuroeconomics: Why Economics Needs
Brains*
Colin F. Camerer
California Institute of Technology, Pasadena, CA 91125, USA camerer@hss.caltech.edu George Loewenstein
Carnegie-Mellon University, Pittsburgh, PA 15213, USA gl20@andrew.cmu.edu Drazen Prelec
MIT, Cambridge, MA 02139, USA dprelec@mit.edu Abstract
Neuroeconomics uses knowledge about brain mechanisms to inform economic theory. It opens up the ‘‘black box’’ of the brain, much as organizational economics opened up the theory of the firm. Neuroscientists use many tools—including brain imaging, behavior of patients with brain damage, animal behavior and recording single neuron activity. The key insight for economics is that the brain is composed of multiple systems which interact. Controlled systems
(‘‘executive function’’) interrupt automatic ones. Brain evidence complicates standard assumptions about basic preference, to include homeostasis and other kinds of state-dependence, and shows emotional activation in ambiguous choice and strategic interaction.
Keywords: Behavioral economics; neuroscience; neuroeconomics; brain imaging
JEL classification: C91; D81
I. Introduction
In a strict sense, all economic activity must involve the human brain. Yet, economics has achieved much success with a program that sidestepped the
* We thank participants at the Russell Sage Foundation-sponsored conference on
Neurobehavioral Economics (May 1997) at Carnegie-Mellon, the Princeton workshop on
Neural Economics (December 2000) and the Arizona conference (March 2001). This research was supported by NSF grant SBR-9601236 and by the Center for Advanced Study in Behavioral Sciences, where the authors visited during 1997–1998. David Laibson’s presentation at the Princeton conference was particularly helpful, as were comments and suggestions from referees, John Dickhaut, Paul Zak, a paper by Jen Shang, and conversations with John Allman, Greg Berns, Jonathan Cohen, Angus Deaton, Dave Grether,
Brian Knutson, David Laibson, Danica Mijovic-Prelec, Read Montague, Charlie Plott,
Matthew Rabin, Peter Shizgal and Steve Quartz.
Scand. J. of Economics 106(3), 555–579, 2004
DOI: 10.1111/j.1467-9442.2004.00378.x
# The editors of the Scandinavian Journal of Economics 2004. Published by Blackwell Publishing, 9600 Garsington Road,
Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

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