Neuroeconomics: Illustrated by fMRI and Lesion-Patient Evidence of Ambiguity-Aversion
Camerer C, Bhatt M & Hsu M. In Bruno Frey and Alois Stutzer, eds. Economics and Psychology: a Promising New Cross-Disciplinary Field. Cambridge, MIT Press, 2007.First Paragraph
This paper is about the emerging field of neuroeconomics, which seeks to ground economic theory in details about how the brain works. This approach is a sharp turn in economic thought. Around the turn of the century, economists made a clear methodological choice, to treat the mind as a black box and ignore its details for the purpose of economic theory (13). In an 1897 letter Pareto wrote
Pareto’s view that psychology should be ignored was reflective of a pessimism of his time, about the ability to ever understand the brain. As William Jevons wrote a little earlier, in 1871It is an empirical fact that the natural sciences have progressed only when they have taken secondary principles as their point of departure, instead of trying to discover the essence of things. ... Pure political economy has therefore a great interest in relying as little as possible on the domain of psychology (quoted in Busino, 1964, p. xxiv (14)).
This pessimism about understanding the brain led to the popularity of “as if” rational choice models. Models of this sort posit individual behavior which is consistent with logical principles, but do not put any evidentiary weight on direct tests of whether those principles are followed. For example, a consumer might act as if she attaches numerical utilities to bundles of goods and choose the bundle with the highest utility, but if you ask her to assign numbers directly her expressed utilities may not obey axioms like transitivity. The strong form of the as-if approach simply dismisses such direct evidence as irrelevant because predictions can be right even if the assumptions they are based on are wrong (e.g., Friedman, 1953 (36)).I hesitate to say that men will ever have the means of measuring directly the feelings of the human heart. It is from the quantitative effects of the feelings that we must estimate their comparative amounts.