Economical decision making

Found pervasively in the neuroeconomic literature are studies demonstrating the surprising subjective value we attribute toward mutual economic cooperation, as well as our drive to altruistically punish those who deviate from equitable norms [1] . Evidence appears to converge on the existence of neural mechanisms which function to preserve empathic economical dynamics whilst regulating the hedonistic, distrusting tendencies that run central to the tenants of economic theory [2]. A growing body of investigations, within which neuroeconomics plays a crucial role, is aiming to reconcile our neural inclinations (to trust reciprocally and punish altruistically) with the decreasingly suitable assumptions classical economic theories posit on the nature of our ability to trust and be trustworthy. With a combination of a variety of neuroimaging and pharmacological techniques, the neuroscientific perspective on reciprocity in economical exchanges can have important ramifications for current economical theories [3]. These ramifications can include revisions to fundamental economic assumptions [2] as well as a push toward a progressive cooperation existing between our designed social-economic infrastructures and the evolutionary mechanisms at play when we interact with one another over finite resources [1].

Designed scenarios and economic games

Modelled economic games grant the ability to test and quantify (in a relative sense) variables which can possibly affect the behaviours and outcomes of economic transactions. The manipulation of these parameters and the economic “games” that result can then be used as a framework to observe neuronal activity, providing a neuroscientific account of what shapes our economic interactions. For example, the dictator game is a scenario where someone is endowed a monetary sum, and a proportion of this said sum is allocated, at their discretion, to a recipient. From this basis additional constraints can be imposed on the dictator game to observe how and what influences this type of interaction. The Ultimatum game stems from this idea, where now the recipient has the choice of rejecting the offer, a rejection which will result in both of them losing their endowment. The third party punishment game is similar to the previously discussed ultimatum game, where now the punishment is done by an outside third party observing the transfer. Beyond a dyadic interaction among individuals is that involving a group of individuals, where they in turn can be placed in a series of economic scenarios. In the random income game, there is no collaborative goal and a randomly-assigned income is given to individuals, whom then have the chance to forgo some of their earnings to reduce the payoff of higher-income earners if they wish [4]. Each of these games add layers of analysis in terms of what can affect the outcome of the transfer, from trust, equity, loss aversion, exclusive self-regard etc. In the prisoner’s dilemma, a simultaneous exchange occurs where one’s wealth is worth more in the hands of another, and vice versa. However, each person has the right to withhold from trading, regardless of what the other does. This simple framework can be used to relatively quantify external factors that can influence the way agents interact with one another. An example of how integrating cognitive and social preferences into models of interaction can lead to more complete models can be seen on Figure 1, where approximately accounting for measures of inequity aversion and reciprocity of losses can lead to a shift that results in a new equilibrium point in this simulation of the prisoner’s dilemma [5].

Figure 1
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Inequity averse participant has utility U(A) = A- x(B-A) if A has less than B. Unilateral defection becomes less attractive and if B defects unilaterally,
A’s subjective utility would be 0 – x(5-0) = 0-5x = -5 without punishment. With punishment (1 cost to A and 5 to B), A’s utility improves to -2. B anticipates
punishment and mutual cooperation becomes the new equilibrium. [5]

Correlational neuroimaging

Areas of the striatum, including the caudate nucleus, have been implicated as belonging to the brain’s reward processing circuitry in a variety of economic and social scenarios [6]. The dorsal aspect of the striatum seems to mediate the reinforcement and learning of self-directed responses that elicit reward, whereas the ventral portion of this same structure (as well as the nucleus accumbens) seem to play more of a predictive role in reward [6] [3]. These reward structures have been used to observe under what conditions punishment in socio-economic contexts is deemed satisfactory or rewarding for the individual delivering the punishment.

The Insular cortex has been associated with many behaviours in a wide range of economic games. Scenarios in which group equality was increased showed a similar increase in anterior insular activation, associating egalitarian behaviour with this part of the insula [1]. This same portion of the insula has also been implicated with the capacity to attribute actions to the self and for autonomic arousal [7]. Bilateral activation of the insula has been shown to be correlated to negative emotional states and distress, as well as a sense of physical disgust toward a stimuli [8]. In socio-economic games, perceived mistreatment arising from conditions such as unfair offers equally activated the anterior insula, irrespective of the fact that the examined individual was undergoing or observing this mistreatment [9].

The prefrontal cortex has been linked to conflict resolution in the integration of economically self-regarding and social considerations of economic behaviour [5]. For example, the medial aspect of the PFC was only observed to be implicated when unfair offers were made to the self and not when observing similar offers being made to others [9]. The integrating nature of the PFC can be observed when comparing the rates of acceptance and rejection of unfair offers, where greater activity of the dorsal lateral PFC was correlated to a higher degree of unfair offers being accepted, perhaps alluding to the fact the the DLPFC plays an antagonistic role to the anterior insula (whose activation is correlated with the rate of rejection of unfair offers) [8].

Recurrent findings on the human nature of economic reciprocity.

A robust observation in a range of these economic games has been that participants have been willing to forego guaranteed earnings, at a net loss to them, to punish individuals that acted “unfairly”. Coined the altruistic punishment, and most widely observed in the Ultimatum game, this consistent reaction from individuals has been subject to a growing interest in research to further understand the mental mechanisms leading to this economically suboptimal behaviour. In the Ultimatum game, standard economic theory would predict that the equilibrium decision to be attained would be for the first individual to give as little as possible from the initial endowment, and for the recipient to accept any amount that is being offered [8]. However, as was previously mentioned, rejecting and punishing inequitable offers has been a consistent response under a variety of conditions.

Altruistic Punishment

The ability to altruistically punish could have served an evolutionary critical role for maintaining trust in smaller communities, perhaps explaining why the dorsal striatum, linked to anticipated reward from the satisfaction of goal-directed behaviours, has been implicated with the predisposition to altruistically punish [3]. Typically grouped as part of the brain’s reward circuitry, its activation was predominantly observed when punishment incurred a real monetary loss to the defecting partner, and not when the punishment was purely symbolic in nature [3]. Activity in the ventral striatum has also interestingly been shown to be higher when the same monetary reward comes from a relatively fair offer in the Ultimatum game, while this same monetary reward, if part of an unfair offer, will in turn show reduced ventral striatum activation [10]. The Anterior Insula (AI), commonly linked to feelings of disgust, has been implicated in fairness-related considerations, extending both to the self and to others when unfair offers are made in money bargaining [9]. Right AI activity, when elevated, was also predictive of the chances an unfair offer will be rejected [8]. Giving credence to the idea that this behaviour may have played a corrective and preservative role in social-economic interactions, unfair offers, when made by a computer partner rather than a human partner, have been accepted at significantly higher rates [8].

Inequity Aversion

It was believed that the disposition to reject an unfair offer is driven exclusively by negative emotions associated to being the subject of said offers [11] [12], but the possibility that instead it involved the desire to maintain a sense of fairness or “fair play” was also suggested [13]. The recipient of an unfair offer could possibly be altruistically punishing because of an aversion to inequity itself or due to the desire of reciprocating the perceived losses, usually referred to as inequity aversion and reciprocity, respectively. It was observed that in the third party punishment game, where the person with the power to punish is not the direct recipient of the offer, punishment was just as likely when an unfair offer was made, even if it incurred a cost to the observer [13]. In a study using the random income game, despite there being no individual responsible for lower-earners, lower-earners were still willing to accept a lost to themselves to reduce the payoff of those with higher incomes [4].

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2. Jang Woo park et al. (2007) “Neuroeconomics Studies”. Analyze and Kritik vol. 29 pg 47-59
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