Decision Making, Risk, and Reward


thumb_winnerIn Scientists Identify Brain Region Responsible for Calculating Risk versus Reward, Scientific American reports on new research shedding more light on the neuroscience of decision making.

Nathaniel Daw and John O’Doherty of University College London and their colleagues employed slot machines and functional magnetic resonance imaging (fMRI) to investigate how 14 healthy subjects decided between reaping steady profits at a given slot machine or testing the profit potential of a new one

The research, part of the growing field of neuroeconomics, was intended to contrast two related human behaviors – “exploitation”, the use of a known resource, and “exploration”, seeking out new resources which may have better rewards. They found, perhaps not surprisingly, that the subjects shifted from exploitation to exploration when the rewards from their current resource appeared to be low. The researchers also observed different brain activity as the subjects changed modes of operation:

The fMRI showed that the frontopolar cortex and sulcus of a given subject strongly activated when they chose to explore. Other studies have implicated these regions in behavioral control and decision making, according to the paper presenting the finding in today’s Nature, but this is the first time neuroscientists have marked these areas of the brain as associated with investigating the unknown.

This may be interesting for casino operators (who, even before this study, had a good idea of how subjects behave when presented with slot machines with different payout characteristics), but why whould the rest of us care? In fact, while our hunter-gatherer ancestors used the exploitation/exploration decision-making circuits primarily for decisions about how to obtain food, today’s humans are presented with many decisions that involve the same kind of contrast.

Much of neuromarketing is grounded in neuroeconomics. Marketers who want us to try a new brand or a new product need to understand how we process risks and rewards, and the difference between exploitation and exploration. Humans are often comfortable in “exploitation” mode, and will tend to stay there if they think the rewards are high enough to not risk “exploring” and suffer the potential disappointment of lower rewards. The individual will be inclined to switch only if he perceives that the status quo is marginal, and that the benefits of trying something new will exceed the risks. Hence, marketing campaigns intended to encourage new behavior (switching brands, using a new product) will be most effective if they address not only the benefits of switching, but also the inadequacy of the status quo.

Most of us don’t forage for food in the forest these days, but the modern day equivalent of that behavior is deciding where to eat lunch. For decades, the most common lunch item in the U.S. has been the ubiquitous hamburger offered by McDonalds, Burger King, Wendy’s, and many other purveyors. Chains like Taco Bell (Mexican) and Arby’s (roast beef) had to overcome entrenched burger behavior in order to grow, and both of these restaurants have used campaigns that not only emphasized their own product flavor but also highlighted the inadequacy of the hamburger habit. When they launched these campaigns, the alternative restaurant chains may not have had the advantage of fMRI scans, but they understood that half the battle was convincing consumers that the food they were consuming daily was boring. By and large, these campaigns were effective – because they minimized the risk of exploring new alternatives.

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