NUEROECONOMICS

Coy, Peter (2005) Why logic often takes a back seat, BUSINESS WEEK, 3/28, 94-95

American economics has always been based on individuals being rational and making choices that are to one's selfish interest in the market place. Irrational behavior is considered an anomaly.

However, microeconomics uses fMRI's to read brain scans of people who look at pictures of goods, services, and savings. What they have discovered is that many purchases are based on lower brain and the limbic system as opposed to long term rational prefrontal cortex behavior. Thus, the brain is in a quandary. Do you want short term pleasure now (lower brain) or long term security (prefrontal cortex.) These findings suggest that marketing encourages short term behavior and humans appear not to be rational or irrational, but non-rational. We would prefer to be happy than right. Most live within their limits and save, but make a number short term choices that are enjoyable. At the moment, there isn't an econometric model for this behavior.

Previously, economics placed other than rational behavior into behavioral economics. However, brain scans now suggest that the core of economics should include humans' non-rationality.