How Your Brain Makes Decisions
I have created a new sub-category, which will contain articles about research into brain behaviour and decision making.
Here are three interesting research developments.
At ScienceDaily: Dopamine-related Drugs Affect Reward-seeking Behavior, we learn that the brain processes rewards differently than losses.
""The results show dopamine drives us to get what we want, but not avoid what we fear," said study author Mathias Pessiglione, PhD, who now works at the Salpetriere Hospital in Paris, France."
This is an interesting research observation. Seekings gains is not automatically associated with avoiding losses. Expected utility theory, on the other hand, treats both of these processes as unitary.
From a due diligence aspect, you would do well to concentrate on eliminating that which you fear before getting too high on dopamine rewards.
The second paper has a different take on rewards versus losses, Scientific American: The Prospects for Homo economicus
"In “The Neural Basis of Loss Aversion in Decision-Making under Risk,” in the January 26 Science, Poldrack, Fox and their colleagues Sabrina M. Tom and Christopher Trepel presented the results of their fMRI study, in which they offered subjects a prospect of accepting or rejecting a gamble that offered a 50–50 chance of gaining or losing money. As the potential for gains rose, they found increased activity in the mesolimbic and mesocortical dopamine systems (dopamine is a neurotransmitter substance associated with motivation and reward). As the potential for losses increased, they found decreasing activity in these same reward-sensitive areas. Interestingly, it appears that losses and gains are coded by the same brain structures—the ventromedial prefrontal cortex, associated with decision making and learning in the context of reward and punishment, and the ventral striatum, associated with learning, motivation and reward. Individual differences in loss aversion were predicted by how much more the brain was turned off by losses than it was turned on by gains."
Finally, the last paper discusses what is happening in the brain when individuals play the ultimatum game. This game is fairly simple to describe. There are two players, A and B. A moves first and proposes a split of $100; B can either reject or accept A's proposal.
Generally, most economists believe that if A proposes a split of $99 for him and $1 for B, then B would be irrational not to accept the proposal.
Yet most offers are in the $45 to $50 range. The challenge is to explain B's power in extracting such offers.
According to this research, described in the Economist
"One explanation of the rejectionist strategy is that human psychology is adapted for repeated interactions rather than one-off trades. In this case, taking a tough, if self-sacrificial, line at the beginning pays dividends in future rounds of the game. Rejecting a stingy offer in a one-off game is thus just a single move in a larger strategy. And indeed, when one-off ultimatum games are played by trained economists, who know all this, they do tend to accept stingy offers more often than other people would. But even they have their limits. To throw some light on why those limits exist, Terence Burnham of Harvard University recently gathered a group of students of microeconomics and asked them to play the ultimatum game. All of the students he recruited were men.
Dr Burnham's research budget ran to a bunch of $40 games. When there are many rounds in the ultimatum game, players learn to split the money more or less equally. But Dr Burnham was interested in a game of only one round. In this game, which the players knew in advance was final and could thus not affect future outcomes, proposers could choose only between offering the other player $25 (ie, more than half the total) or $5. Responders could accept or reject the offer as usual. Those results recorded, Dr Burnham took saliva samples from all the students and compared the testosterone levels assessed from those samples with decisions made in the one-round game.
As he describes in the Proceedings of the Royal Society, the responders who rejected a low final offer had an average testosterone level more than 50% higher than the average of those who accepted. Five of the seven men with the highest testosterone levels in the study rejected a $5 ultimate offer but only one of the 19 others made the same decision.
What Dr Burnham's result supports is a much deeper rejection of the tenets of classical economics than one based on a slight mis-evolution of negotiating skills. It backs the idea that what people really strive for is relative rather than absolute prosperity. They would rather accept less themselves than see a rival get ahead. That is likely to be particularly true in individuals with high testosterone levels, since that hormone is correlated with social dominance in many species."
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