Economic Decisions and the EEG: An Example

Many neuroeconomics studies use fMRI machines. In my group, we currently concentrate on the electroencephalograph (EEG). The main reason is that we are interested in the analysis of decision processes in the brain, and the EEG has an excellent time resolution, while the fMRI is better for questions requiring a fine spatial resolution, e.g. brain localization.

An example of what the EEG can do for economic research, and in particular decision theory, is in a paper from my lab (Achtziger, Alós-Ferrer, Hügelschäfer, and Steinhauser, 2014), published in the journal Social Cognitive and Affective Neuroscience (with the lovely acronym SCAN). In case you are wondering, authors are in alphabetical order as per econ conventions; unlike neuroscientists, economists do not quibble about who has contributed more to a given paper.

Coordination, Networks, and Technological Standards

Coordination games are a stylized model for, well, coordination problems. Think of computer operating systems. Windows, Mac, or Linux? Technological choice is also a good example. The past decades have seen quite a number of “format wars” in the multimedia sector, for instance when Sony-supported BluRay was able to wipe out the Toshiba-backed alternative HD-DVD format, each of them with back doors into people’s homes through gaming platforms (PS3 vs. XBox 360). Older generations (damn, I am getting old) will remember the battle between VHS and Betamax (remember the third format, Video 2000? You do? OK, you are officially old now!). Establishing a standard, in any field, always leads to a coordination game, from deciding which side of the street to drive on or adopting the metric system to establishing a particular container size for transport or adopting a management practice. If everybody adopts the same standard, nobody will want to deviate, hence we are at a Nash equilibrium, as explained in basic Game Theory. But every single standard is a Nash equilibrium, so which one should we coordinate on?

Multitasking or Multi-Wasting?

So you are a multitasker. SMSing, what’s-apping or whatever while you check your email while typing on that document you really have to finish today, or studying for an exam. But it’s all fine, because you are a multitasker. Duh.

Better think that over again.

Consider the work of Ophir, Nass, and Wagner (2009) in the prestigious journal PNAS. Using well-established performance tests from cognitive psychology, they compared “heavy media multitaskers,” that is, people used to work with lots of distractions, with “light” ones. The result? Heavy multitaskers think they are more productive. But they are completely wrong: they are actually less productive.

Quo Vadis, Economics? (III) Economics Needs More Data, and a Lot More Maths

Economics, as psychology, studies human behavior. Unlike psychology, however, economics has always faced harsh demands to deliver quantitative predictions. Knowing that human beings favor this or that is not enough. How much are they willing to pay for it? Are consumers better or worse off if the an airline merger is authorized, or if a state monopoly is forced to admit competition? By how much more will the unemployment rate go up in countries in the south of Europe in the next two years if the German savings rate remains unabated?

Quo Vadis, Economics? (II) Micro- and Macro-Models of Bounded Rationality

Economics has long split in two thematically overlapping but well-differentiated areas: microeconomics and macroeconomics. Macroeconomics is supposed to answer questions at the aggregate level (Can economic crises be predicted? Should a central bank target unemployment?). The key implicit assumption which singles out the macroeconomics approach is the hope that individual behavior does not matter much at the aggregate level. And I say “hope” intentionally, for it is but a weak hope at best, and it might just be wishful thinking at worst. It is, however, an understandable approach. The more empirically-oriented parts of macroeconomics have often turned to sophisticated statistical techniques to fit and forecast (but not necessarily understand) economic trends at the aggregate level, ignoring any behavioral foundation. Which is as it should be: we do not have the time to build sophisticated, realistic theories to predict the effect on next semester’s unemployment rate if a particular public spending program is approved.

Quo Vadis, Economics? (I) Economics and Bounded Rationality

Few people would criticize the hospital’s physicians for not predicting the exact day of the onset of cancer in a patient, especially if the patient has been consistently ignoring the physician’s advice about living in a more healthy way. Likewise, few people will question the usefulness of geology as a science simply because our knowledge is still too meager, or the Earth’s structure is too unstable, for geologists to accurately predict earthquakes. However, for some reason it has become something of a sport to openly criticize economists and the economic science as a whole for an alleged failure to predict specific economic crises. Get real, guys.