I’m still catching up on the reading I missed during my extended trip (and posting hiatus) a few weeks ago, and one of the more interesting things I’ve run across is an article in the UK’s Times Online, Why say no to free money? It’s neuro-economics, stupid. The article describes an unusual variation on the “Ultimatum Game”, an experiment in which the subject and another individual (who remains anonymous) share an amount of money (say, $20). The other individual determines the amount he will share (e.g., he will keep $14 and give the subject $6), and the subject can accept that share, or reject it; if he rejects it, neither individual receives any money. Logically, any non-zero share of the money is better than nothing, and the subject would be acting rationally to accept even a low share. In fact, experimenters have found that the lower the share goes, the more likely the subject is to consider the split “unfair” and reject the offer. In this example, research would predict that at offers below $5, four out of five subjects would reject the offer, gaining no money but preventing the other person from profiting “unfairly”.

The novel approach to the Ultimatum Game was tested by researchers Ernst Fehr and Daria Knoch of the University of Zurich, who “used a technique called transcranial magnetic stimulation to tire out and thus temporarily suppress a part of the brain called the dorsolateral prefrontal cortex (DLPFC). Functional magnetic resonance imaging scans show that this is particularly active when people play the ultimatum game.” The study showed that when the DLPFC was taken out of the process by the magnetic stimulation procedure, the subjects began to behave in a fashion that one might consider either selfish or rational: they accepted the low offers, even though they were still able to perceive them as unfair.

The study provides a key neuroeconomics insight:

The results tend to support a very different theory of human behaviour from that favoured by classical economists. Our decisions seem not to be determined mainly by reason, but by a continuous battle between two sides of our psyches that are rooted in different mental circuits. One of these is rational, controlled by the cortex the cauliflower-like outer section of the brain where reasoning takes place, which is uniquely developed in humans. The other, however, is emotional, governed by the limbic system the deeper-lying brain structures such as the amygdala that are much closer in character to the brains of other mammals.

In past posts about neuroeconomics, we’ve discussed the balancing act the brain performs when making decisions – it seems to weigh the potentials of different alternatives in arriving at a decision. The new study provides clear evidence of this by showing that one can alter that balancing process artificially.

It’s intriguing to think that we could transform people into rational decision-makers so easily, though having a population of insensitive selfish individuals walking around doesn’t sound like a particularly appealing alternative to normal human irrationality. And while transcranial magnetic stimulation isn’t going to catch on as a commercial procedure, the insights provided by this experiment are indeed significant. If nothing else, it’s a reminder that under normal conditions, emotions often overrule rational choices. George Loewenstein, Professor of Economics and Psychology at Carnegie Mellon University, makes the point succinctly:

The new science of neuroeconomics is lending support to a very ancient view of human behaviour. That is the idea that there is a conflict and interaction between passion, and reason and self-interest.