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So now I will give a few examples how
economics,
psychology, neuroscience can be combined
during the studies of decision making.
We will not go into details today because
in
the follow-up lectures, we will discuss
the formal neuroeconomics
models of this decision making process,
but it will
give you an example how different
approaches can be combined.
So let's make a look to the famous
experiment,
one of the earliest neuroeconomic
experiment conducted by Alan Sampfly.
So, some of you know that very classical
behavioral economics game, ultimatum game.
Some of you perhaps do not know this
game that's why I will explain you quite
quickly.
Imagine that there are two players, so
player
one gets a sum of money, for example $100.
Player one has to split this money in any
proportion.
So for example, the player one can offer
only $1 to player two.
Can split money equally.
So there is no limitation.
Player one can split money in any
proportion.
This game is played once, and anonymously.
So, players do not know each other.
Player two can either accept or reject the
offer.
If player two rejects the offer, nobody
gets any money.
If player two accepts the offer, they get
money in the proportions adjusted by
player one.
So, very simple experiment but it actually
makes a lot of, interesting predictions.
According to the normative economic
theory, player two in
this situation has to accept any sum of
money.
Why?
Because even $1 is more than 0.
If player two rejects the offer, he gets,
or she gets nothing.
That's why player two, in accordance with
normative
theory, has to accept any sum of money.
Actually, in reality, people have a
tendency to reject.
In this case, the sum below 30%.
So, people react to the small sums as
unfair offers.
And this is something interesting, and
very surprising for normative economic
theory.
So, people behave irrationally.
So, neuroeconomics suggested to make a
look, what happens
in the brain when we get these unfair
offers?
And Alan conducted a very interesting
experiment.
So here you see brain activations,
activity
of the brain when subjects face unfair
offers.
So you see different activities.
Let's focus now on dorsolateral prefronal
cortex, DFPLC, and and anterial insular
cortex.
In neuroeconomics, we will, meet this
brain areas quite often.
We will discuss this, the role of,
functional role
of this areas in details in the next
lectures.
But briefly, dorsolateral prefrontal
cortex is related to
the cognitive control, to the more
rational decisions.
Insular cortex is an emotional area in the
brain.
For example, this area is actuated when we
experience disgust or when we feel pain.
Let's make a look to the activity of these
regions when we face unfair offers.
So, Alan suggested that the relative
activation of the
insular cortex and dorsolateral prefrontal
cortex can predict our decisions.
If insular cortex is more active than
dorsolateral prefrontal cortex, is as if
emotional
brain areas are more active than our
rational brain areas, we reject the unfair
offers.
So if insular cortex, emotional area, is
not active enough, we accept unfair
offers.
And what happens if we will temporarily
shut down dorsolateral prefrontal cortex.
Is our rational brain areas.
So we can do it using transcranial
magnetic stimulation.
We will discuss this method in detail
during the next lecture.
But these magnetic pulses, we can
temporally inhibit activity of certain
brain areas.
For example of the dorsolateral prefrontal
cortex.
And this experiment shows, that if we
temporarily
shut down activity in the right
dorsolateral prefrontal
cortex, the acceptance pressure for the
unfair offers
goes up, so we start to accept unfair
offers.
So with neuroscientific techniques, we can
detect
brain activity reacting to the unfair
financial offers.
With neuroscientific techniques, we can
manipulate activity related to
their, our reaction to unfair offers and
change our behavior.
We can increase acceptant integration.
So people start to agree with unfair
financial offers.
Furthermore, we can investigate the
evolutionary
basis of our reaction to unfair offers.
So, for example, we can study whether
monkeys
have an emotional reaction to unfair
financial offers.
We can investigate Capuchins so they can
trade
small pieces of plastic, plastic coins,
for food.
So in this case, this monkey exchange coin
for biscuit.
What happens if another monkey will also
make, this transaction.
But instead of biscuit, we get a much more
tasty grape.
So our monkey can actually see that
another
monkey gets much more for the same coin.
This is unfair situation.
Would monkey reject financial transactions
in this case?
And we will know it from our course.
because the monkeys also have a reaction
to unfair financial offers.
If they do have, it would mean
an evolutionary basis of how our financial
decisions.
So, for neuroeconomics, it is very
important to combine various approaches.
We should remember that our nervous system
is not only system that supervise our
behavior.
There is also endocrine system and dozens
of glands in
our body produce hormones that modulate
out decisions and our behavior.
Two major systems supervising our
behavior, endocrine system and nervous
system.
They're quite different.
So for example, nervous system is a wired,
hard-wired system
because neurons are organized in more or
less stable networks.
But endocrine system is a wireless system
because glands produce hormones, injects
hormones to the bloodstream, and blood
distributes hormones around the body.
Nervous systems is quite fast systems, so
neurons can change our behavior in
milliseconds.
Hormone system, endocrine system, is much
more slow.
It takes seconds or hours to change our
behavior.
So they're two systems but they both
affect our decisions.
So for example, very important gland is
located on the basis of the brain.
It is functionally connected to the brain.
This is so called pituitary gland.
This gland, the posterior part of
this gland, produces different hormones,
including oxytocin.
And oxytocin is a very important hormone
for the decisions in social contexts.
So, oxytocin or the blood level of
oxytocin affects our bonding with
our partners, affect our sexual behavior,
affect social relationship, affect sexual
responses.
And the level of oxytocin affects our
trust during the financial decisions.
So this interesting line of study is
related to the famous neuroeconomist Paul
Zak.
He investigates oxytocin quite a lot.
He suggests that oxytocin is a hormone of
peace.
There are different views in the society
of neuroeconomics about
the functional role of oxytocin, but
definitely oxytocin affects our decisions.
And Paul Zak, together with the group
of [UNKNOWN] conducted a various marked
experiment.
They used a standard behavioral economics
task called a trust game.
So in this game, two players are playing
together and
player one, in the best investor, gets 12
monetary units.
He then actually can invest 0, 4, 8, or
12 monetary units to the player two, to
the trustee.
Whenever the sum is invested, this sum is
tripled by the experimentator.
So, trustee gets additional 12, 24, 36,
monetary
units, and trustee can make a decision how
to split the amount of money.
This person has a [INAUDIBLE].
So, then, this person can have 12 monetary
units if she doesn't
get any investment from the investor 24,
36, or 48 monetary units
and investor has to trust trustee because
trustee can keep all money.
It was an interesting paradigm that allows
us to investigate trust of people.
So, if you will make a look to
the distribution of the average transfer
amounts across subjects.
Subjects who got oxytocin and in this
graph
their results are indicated by the black
lines.
They give much more maximum investment
decisions.
So they much more invest all money to the
trustee.
So oxytocin can stimulate trust during
the financial operation, during the
financial decisions.
So our endocrine system modulates our
decisions.
Of course our genes also modulate our
decisions.
So I'll just give you one example, to the
study was
conducted by Paul Zak, with traders on
the, Wall Street market.
And he found a correlation between
different versions of the gene,
affecting the level of dopamine, and the
success on the market.
He measured success as average years in
the profession.
And he found that the moderate level of
dopamine related to
the gene AA brings most success to the
traders on Wall Street.
Compared to the version GG and GA, these
versions of the genes
are related or resulted in the high level
of dopamine in the brain.
So, as we will learn from this course,
dopamine is very
much related to our reward system and our
risk taking behavior.
So, it looks like you need a more direct
level of dopamine in the brain
and, perhaps, less level of risk taking to
become a successful financial trader on
Wall Street.
So, this study provocatively showed us a
link between our
genotype or the version of our genotype
and our financial decisions.
So overall, neuroeconomics combines
economics, genetics, biology, and
neuroscience,
psychology together to build a unified
theory of decision making.
I will try to present you a general
main concepts of neuroeconomics in the
follow-up lectures.
So, during the next lecture we'll discuss
brain imaging techniques,
but in lecture three, I will present to
you the main models of decision making.
But before that, I would like to shortly
discuss with you some philosophical
aspects of decision making.
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