Saturday, February 9, 2013

Neuro-economics

Recent attempts at using imaging techniques to establish a neuro-basis for irrational economic decisions is likely in the wrong direction. Seeking a hardware deficiency to justify behaviors that cannot be explained by established theory, is a bit like hitting your computer or worse, taking an MRI scan of the computer chip inside, when your spreadsheet produces unexpected results. Perhaps, simpler explanations are already available.

Human mind has never been good in making consistent and rational decisions in the presence of uncertainty. Early in the human evolution, the left brain had to take a firm command of the proceedings, imparting deterministic and process oriented decision methodology on a specialized serial processor. After all, he had to hunt systematically over known routes and gather water from familiar waterholes. The parallel processing right brain remained a silent witness and continues to be so in the modern world.  Economics is no different, linear thoughts and well behaving normality statistics have consistently pushed humans to irrational decisions. But, there is little need to take pictures of the brain or cut it open to understand this phenomenon.

Seeking simpler explanations to known behaviors is always dominant.