How well do we understand how people make choices? Place a bet on your favorite theory

Put your money where your mouth is, as they say:

The goal of this competition is to facilitate the derivation of models that can capture the classical choice anomalies (including Allais, St. Petersburg, and Ellsberg paradoxes, and loss aversion) and provide useful forecasts of decisions under risk and ambiguity (with and without feedback).

The rules of the competition are described in The submission deadline is May17, 2015. The prize for the winners is an invitation to be a co-author of the paper that summarizes the competition (the first part can be downloaded from…

Our analysis of these 90 problems (see shows that the classical anomalies are robust, and that the popular descriptive models (e.g., prospect theory) cannot capture all the phenomena with one set of parameters. We present one model (a baseline model) that can capture all the results, and challenge you to propose a better model.

There was a competition recently that asked people to predict seizures from EEG activity; the public blew the neuroscientists out of the water. How will the economists do?

Register” by April 1. The submission deadline is May 17!


Economics of Social Status

In economic terms, for a good to function as money it must serve three related purposes:

  1. A medium of exchange,
  2. A store of value, and
  3. A unit of account.

We’ve already discussed how status functions as a medium of exchange. Because it’s so fluid, it can be used to price favors and other goods at relatively fine resolutions, and it facilitates transactions that wouldn’t otherwise be able to occur. Negotiating with status beats the hell out of bartering — i.e., trading one specific good for another — thereby allowing smoother, more efficient economies to develop.

Certain goods – money, nice cars – are only useful insofar as they contribute to first-order goods: food, water, reproduction.  Does social status count as a first- or second- order good?  While it doesn’t keep us alive, we are social creatures that crave and need social attention.  Consider what happens to socially isolated individuals, especially those in prison.  Go read about the economics of social status.

Is neuroscience useful? (Updated)

I recently got a quadcopter and in pockets of my spare time I’ve been attempting to make it an autonomous drone. Yet reading this article on unmanned drones has me returning to some thoughts I’ve had while working on the project.  Basically: is neuroscience useful?  Much of the utility from drones comes from their autonomy and adaptability.  In my naive fantasies, I think that the work we do to understand the nervous system should inspire drone makers, hiring neuroscientists left and right to implant the lessons we’ve learned from the nervous system into these machines.

And yet – and yet I’m not aware of anyone doing this.  There are whispers and rumors emanating from the Brain Corporation that this is their mission but I have yet to see anything concrete come out of that (to be fair, they’re a relatively new company).  But even more we should be asking ourselves: are we going to be leap-frogged by those who are working in computer sciences – artificial intelligence, machine learning, vision processing?

That the drones are living in a newly created ecosystem, interacting and invading new niches, is undeniable.  Presumably an enterprising young scientist in ecology, neuroscience, (economic) decision-making should be perfectly suited to at least consulting on these projects.  I guess the question is: does that actually happen?  Outside of ‘explaining the brain’ for ‘medicine’, do we do anything that’s actually useful?  Or is that up to the engineers?

Update: Well here’s a good example of using animal behavior/reflexes to improve robotics.

Economic incentives and social behavior

When studying decision-making in neuroscience, experimenters like to have participants be rewarded with money – or units of juice or ‘points’ or suchlike.  Although this may seem like a natural way to measure decisions, we have to step back and ask ourselves whether using this as a basis for reward will affects decision-making in anyway.  Looking around, I found a recent review paper by Bowles and Polania-Reyes that examined how explicit economic incentives change motivation.  Even though it is meant for economists, it has good things to think about for everyone interested in decision-making, motivation, and interpersonal behavior.

Their motivation for this review is clearly set up by a great anecdote.  Before early 2001, Boston firemen were given unlimited paid sick days, trusting them not to abuse it.  In 2001 this policy was replaced with a 15-sick day limit, with penalties for those who went over.  What happened?  Firemen were ten times as likely to call in sick on Christmas and New Years Day, and the total number of sick days claimed more than doubled.  What had been a social privilege instead became an economic transaction.

Rewards are unlikely to be represented in the brain in a purely one-dimensional manner; not everything can be converted equivalently to ‘money’ in some way.  To wit:

Economists know that money is the perfect gift – it replaces the giver’s less well-informed choice of a present by the recipient’s own choice. But when the holidays come around few economists give money to their friends, family and colleagues. This is because we also know that money cannot convey thoughtfulness, concern, whimsy, or any of the other messages that non-monetary gifts sometimes express. A gift, we know, is more than a transfer of resources; it is a signal about the giver and her relationship to the recipient, and money changes the signal.

How we feel about money, reward, and trust is also socially contingent; Bowles and Polania-Reyes report two experiments in societies in Africa, Asia, and Latin America which showed that individuals from more market-integrated societies gave more in the Ultimatum Game.  But it’s not just that they are socially contingent; each offer of resources also sends a social message beyond the purely monetary one.  A low offer can indicate lack of trust, a lack of respect, or a wide range of other things.  The point is that monetary rewards will always have a social effect.  Since monetary offers are in essence social in nature, offers of money for behavior can have side effects on morality; being asked by society to perform an act for money may cause an individual to act more immoral because society has sent the message that morality is unimportant.  And the same offer of money for a behavior can have totally different social meanings depending on the culture:

The fact that fines often work more as messages than as incentives poses a problem for the sophisticated planner because the same intervention may bear radically different messages in different cultures. Bohnet and her co authors implemented a Trust Game in which in one treatment the investor had the option of reducing the payoffs of trustees who betrayed their trust (Bohnet, Herrmann, Al-Ississ, et al. (2010)). Compared to the treatment in which this socalled “revenge” option was not available, when they had the revenge option a substantially larger fraction of Saudi investors trusted their partner, while a substantially smaller fraction of American investors trusted. Making trust more incentive compatible thus had diametrically opposed effects in the two cultures.

Economists like to use revealed preference as a measure of desire or utility.  However, money is not just a reward to individuals, it also contains information and will have side effects on behavior.  This review paper is meant to guide policy makers on how to best provide incentives, with the point that the perceived intent of the incentive is just as important as the incentive itself.  For neuroscience, the point we should take is that we have a lot more to think about when we try to understand decision-making in all its messy glory.

Samuel Bowles, & Sandra Polania-Reyes (2011). Economic incentives and social preferences: substitutes or complements?  Journal of Economic Literature DOI: 10.1257/jel.50.2.368

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Genes for savings behavior

The genoeconomics revolution is on!  Kind of.  Via Evolving Economics, a recent paper described how savings across life are explainable genetically.  Using twins, roughly one-third of the variance is explained by shared genes, in line with the genetic heritability of other behavioral traits..  This shouldn’t be remotely surprising.  Not only do they have another similar paper, but so do other people.  Evolving Economics points out one interesting (though again unsurprising) part of the study, though:

The evidence that parental influence fades out for older subjects and disappears by age 45, compared to the relatively constant genetic effects, is interesting. The break down of effects by age is not a regular feature of studies such as these (it comes at the cost of sample size). The authors write:

Our interpretation of this evidence is that social transmission from parents to their children affects children’s savings behavior early on in life, but unlike genetic effects, parenting does not have a lifelong impact on an individual’s savings behavior. These results are broadly consistent with research in behavioral genetics which has found a significant effect of the common family environment in early ages on, e.g., personality, but also shown that such effects approach zero in adulthood

The really interesting thing, though, should be: what genes are responsible for these behaviors?  Are risk-taking and overall savings rate related to the same genes?  How do these genes interact with the environment?  A quick search reveals a relationship between 5-HTTLPR (serotonin transporter; how much serotonin is in the body) as well as DRD4 (dopamine D4 receptor, a D1-like receptor that is mostly expressed in prefrontal cortex, iirc) with economic risk-taking.

But these papers are, hopefully, proof of principle for the economic community.  If papers like this can garner some influence, maybe a broad behavioral economics community can arise that studies these genetics.  God knows, listening to the first author of this paper talk makes it evident how much biology he needs to learn.