Research Paper: Neuroeconomics What Is Neuroeconomics?

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[. . .] Taking this a step farther, research into neuroeconomics can help to explain how an individual or a group will react to economic choice and utility throughout their life cycle, and it can also be used to determine differences in other matters that are central to completely understanding economics.

4. Is it possible to explain Global Financial Crisis (GFC) with the help of Neuroeconomics?

This is a difficult area for any one branch of science to understand and explain. For the last four years, books have been written about the events which led up to the global financial crisis, and how it could have been avoided if better attention was paid in this area or that. Everyone from financial advisors to heads of state have been blamed (with particular attention paid to the actions in the United States), but there is not a clear consensus as to what caused such a drastic downturn that affected the entire world. Stiller (2011) makes an interesting statement when he says that "Much of modern economic and financial theory is based on the assumption that people are rational, and thus that they systematically maximize their own happiness, or as economists call it, their "utility." The interesting part, and the one that may have been one of the largest contributors to the global financial crisis is the assumption that people are rational.

It could be said that people make rational decisions based on the information that they have, but that the information itself is faulty. However, this goes against the logic of what happened in Greece, for example. In Greece, austerity measures were called for because the government was not able to maintain a budget. The budget deficit for 2009n was 13. 6% (Balasubramanian, 2010), and it threatened to be worse the next year. The reason for the massive debt that Greece had built, and continued to build was that the government was giving the people such exorbitant amounts of handouts via social programs that exceeded the state's ability to actually meet them. The primary issue though was that even when the EU and IMF bailed out the country with the stipulation that the Greek government would make spending cuts that would bring the budget under control. The reaction from the public was anything but rational. "Workers and labor unions balked at Prime Minister George Papandreou's drive to bring the budget under control, protesting viciously his proposed measures to cut the deficit to the European Union's requirement of 3% of GDP" (Balasubramanian, 2010). The public, in standard economics is expected to act rationally, but this example shows that people do not do so. Other examples such as investing in a housing expansion that will supposedly never end is another sign of irrational thinking. The problem is that this type of mass problematic thought process is brought on by ideas such as utility. It should be said that people will do what they believe is best for themselves despite the evidence that it may not be the best for humanity in general. This is a cynical Humesian manner of thinking, but people are out for their own self-interest, especially when it comes to personal economics, so rational thinking is not actually a part of it.

The question of whether neuroeconomics could have helped explain the global financial crisis is clear. From the article by Camerer, et al., (2004) it can be seen that many of the impulses people have are related to the same primitive brain that animals have. The instincts which guide such primitive actions as self-preservation can easily be explained through the use of neural imaging which shows the area of the brain that is being utilized when a specific type of decision is being made. The authors talk about the decisions that are made which require only the most primitive aspects of the human mind (those that compare most favorably to animal cousins) and those that require the higher functions of which humans are evolutionarily blessed. Rational decisions that require a higher plane of thought fall into this category, and it would seem that economic decisions should fall into this as well. Unfortunately, that is not always the case. Neuroeconomics could have shown, possibly what types of decisions were being made, and if they were of the highest order, or somehow harkened back to the primitive brain.

Looking at the Greek tragedy again, can it be said that a government trying to help its people have a better life is a higher order function or not? Would neuroecomics have shown that this was a destructive path when taken to the extreme, and been able to determine that harder choices were a better fit because they involved truly rational thought processes. It is unfortunate that the best path is not always the easiest, but even animals realize this at times. But, being able to make decisions that take the best road and not the easiest is something that neuroeconomics, and higher cognitions, could have made imminently clear.

5. Suppose, you are holding a senior marketing executive position in your company. Is it possible to use the knowledge of Neuroeconomics to promote the sales of your company?

Research indicates that standard economics has been wrong all along with regard to the choices that people make.

"Most believe their decisions are the end result of a logical, step-by-step process. But these "neuroeconomic" studies tell a different story: Buyers buy with their hearts first. When money changes hands, the primitive, emotional part of the brain calls the shots; Buyers buy with their heads second. Logic comes in afterwards as the brain's attempt to justify the decision it's already made. Buying with their hearts: When money changes hands, the deep, primitive -- emotional -- part of the brain calls the shots" (Cherry, 2012).

This research shows that people tend to make decisions that do not necessarily involve logical thought processes when they make a buying decision. This can also be seen in other areas such as political science. People are prone to irrationality and emotionality because they are basally programmed that way

This being said, neuroeconomics could be very beneficial to a sales program, but it seems that it would also be unfair. Neuroeconomics would show how people really think, and would change many of the assumptions that drive standard economic theory. Since new research proves that people actually think emotionally rather than rationally, this could be used to target products to people in a new way. Of course, much advertising already targets the heart instead of the head, but this research would probably benefit all sales programs. As an example, a sales program could be used to target a specific segment of the population or specific type of decision making that is more effective than another. It would be a very effective tool.


Balasubramanian, A. (2010). Merkel in trouble: Greek debt, the EU, and politics. Harvard International Review, 32(2), 9-10.

Brown, S.B.R.E., & Ridderinkhof, K.R., (2009). Aging and the neuroeconomics of decision making. Cognitive, Affective and Behavioral Neuroscience, 9(4), 365- 380.

Camerer, C.F., Loewenstein, G., & Prelec, D., (2004). Neuroeconomics: Why economics needs brains. Scandinavian Journal of Economics, 106(3), 555-579.

Cherry, P. (2012). The neuroeconomics of sales: How buyers really decide. Retrieved from really-decide.html

Glimcher, P.W., (2011). Foundations of neuroeconomic analysis. Oxford, England: University of Oxford Press.

McDermott, R., (2009). Mutual interests: The case for increasing dialogue between political science and neuroscience. Political Research Quarterly, 62(3), 571-582.

Redmond, W.H., (2003). Decisions, uncertainty, and the brain: The science of neuroeconomics. Journal of economic Issues, 37(4), 1196-1197.

Shiller, R.J., (2011). The neuroeconomics… [END OF PREVIEW]

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Neuroeconomics What Is Neuroeconomics?.  (2012, April 22).  Retrieved April 22, 2019, from

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"Neuroeconomics What Is Neuroeconomics?."  April 22, 2012.  Accessed April 22, 2019.