Abstract
Abstract Two systems in the brain that are involved in emotional and economic decision-making are described. The first is an evolutionarily old emotion-based system that operates on rewards defined by the genes such as food, warmth, social reputation, and having children. Such decisions are often based on heuristics, such as being highly sensitive to losses, because a single loss might influence one's reproductive success. This is a multidimensional system with many rewards and punishers, all of which cannot be simultaneously optimized. The second route to decision-making involves reasoning, in which it is assumed that utility can be accurately assessed and logical reason can be applied, though the human brain is not naturally computationally good at logical assessment. When decisions are taken, all those factors apply, and in addition there is noise introduced into the system by the random firing times of neurons for a given mean firing rate. The implications for economic decision-making are described. In macroeconomics, it is assumed that the economy behaves like one “representative” agent who can take rational and logical decisions, and who can maximize utility over a constraint. Given the neuroscience of decision-making, the situation is more complex. The utility function may be multidimensional, the reward value along each dimension may fluctuate, the reasoning may be imperfect, and the decision-making process is subject to noise in the brain, making it somewhat random from occasion to occasion. Moreover, each individual has a different set of value functions along each dimension, with different sensitivities to different rewards and punishers, which are expressed in the different personalities of different individuals. These factors underlying the neuroscience of human decision-making need to be taken into account in building and utilizing macroeconomic theories.
Highlights
In this article I unravel some of the implications for economics of our understanding of the brain mechanisms underlying valuation and decision-making
There is evidence that relative reward value may be represented in the orbitofrontal cortex (Tremblay and Schultz, 1999), and in what may provide a resolution of this, we have found that some parts of the orbitofrontal cortex may represent the absolute pleasantness of stimuli and others the relative pleasantness of stimuli (Grabenhorst and Rolls, 2009)
In a study of this, it was found that activations in the ventromedial prefrontal cortex were correlated with the subjective utility of rewards delayed for different times, with the discount curve for each subject reconstructed from each subject’s choices (Kable and Glimcher, 2007)
Summary
In this article I unravel some of the implications for economics of our understanding of the brain mechanisms underlying valuation and decision-making. I will argue that there are two major systems in our brains that are involved in choices, one that can operate logically or rationally in this way, but a second that operates emotionally, based on gene-specified reinforcers for actions, that is much less calculating, but that reflects factors that have tended to promote survival in our evolutionary history and have been the subject of natural selection. I show that the brain’s non-deterministic choice decision systems have evolutionary advantage (Rolls and Deco, 2010; Rolls, 2016) Understanding these factors that influence subjective utility, and the underlying mechanisms that implement choice within the brain, can improve our understanding of utility, that is, what makes us choose particular goods
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
