An Economic and Neuroscientific Comparison of Strategic Decision-making

Abstract

Economic decision- making is traditionally based on the assumptions of the predominant existence of Homo economicus (Latin: economic human being). The framework of this theory is known as the Rational Choice Theory (RC Theory). It includes assumptions such as utility maximization, opportunism, bounded rationality, complete information and rational facts. Thus, everything that can be measured is integrated into the decisions of homo economicus, and the decision is rationally made. But the decision model of the homo economicus is subject to criticism by many economists as this agent’s decisions are supposed to be based on comprehensiveness and quantitative factors (Camerer et al., 2005). What is missing in this decision model are soft factors such as motivations and emotions as well as context and interdependencies between the factors of decision- making. The need to improve the decisive power of the homo economicus is refl ected in the diff erent derivates coming from various fi elds, for example, Homo sapiens, Homo sociologicus, Homo ludens, Homo reciprocans, Homo politicus, Homo religiousus, Homo europaeus and many more. Still even these derivatives are criticized as not being satisfyingly adequate and comprehensive for decision models. One basic reason for this is that behavioral models are harder to develop than traditional economic models; building models of rational, unemotional agents is easier than building models of quasi- rational emotional humans. Neuroeconomics is a newly recognized fi eld of interest that aims to open the ‘black box’ of economic decision- making and might help to formulate new economic models of decision- making that are more realistic compared to traditional models, thus making them more effi cient (Fehr et al., 2005; Zak, 2004). In this chapter we focus on strategic decision- making and two of its important aspects and ask the following research question: can results of neuroscientifi c research help to better manage aspects of uncertainty and reward in strategic decision- making? In order to answer this question, we fi rst compare strategic decisionmaking in economics with strategic decision- making in neuroscience regarding uncertainty and reward. Second, we integrate these results and show how they accord (or do not) with each other. Lastly, we give implications on how strategic decisions can be made more effi cient by integrating results from neuroeconomics and give propositions for future research.