Neuroeconomics

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What is Neuroeconomics’?

Neuroeconomics attempts to link Economics, psychology, neurobiology and to gain a better understanding of economic decisions. Basic economic theory assumes that the intricacies of the human brain will never be discovered. However, with the development of technology, neuroscience has produced methods for the analysis of brain activity.

The Penetration Of ‘Neuroeconomics’

Of fundamental importance for the study of neuroeconomics is the need to fill certain gaps in traditional economic theories. Economic decisions in the traditional sense, implies that investors will objectively assess the danger and react in the most rational way. Behavioral Economics shows that human behaviour does not always follow economic theory or optimization utility. Understanding of mechanisms of work people can help you better predict the future of the economy.

For example, history shows inflating the “bubble” of assets and, consequently, financial crises. Neuroeconomics provides an understanding of why people do not act to optimize the utility (and irrational) to avoid financial hardship. Generally, emotions have a huge impact on the decision of individual solutions. The brain often reacts more to the loss than profit, which may stimulate irrational behavior. While emotional reactions are not always optimal, they are rarely consistent with the concept of rationality. As neuroeconomics becomes more developed, the field study will improve the understanding of the mechanisms influencing decision-making.

Four areas of research in Neuroeconomics

Neuroeconomics can be broken down into four main areas of research; intertemporal choice, game theory and decision making under risk and uncertainty. Each study determines how people balance their emotions and utility in the face of risk and uncertainty.

Intertemporal choice is the process by which people decide what and how much to do at different times; the choice made at the time affect the choices available at another time.

Game theory uses mathematical models of conflict and cooperation between rational, intelligent decision makers.

Decision-making under conditions of risk and uncertainty describes the difficult situation of managers, which are a lot to take into account the risk in its strategy decision-making, which requires information on the probability distribution of outcomes, such as expected value (or mean) of the distribution, variance, and standard deviation, and coefficient of variation.

Applications for Neuroeconomics

According to the world economic forum in 2016, Professor Platt Michael Platt from Wharton, University of Pennsylvania, spoke in Davos and explained that researchers from Stanford University have found that they can predict the effectiveness of campaigns, microcredit, using brain scans of participants in the laboratory. Platt also suggested that the approach can be used in marketing to influence consumer behaviour, for example, to encourage better choices in relation to nutrition or health.

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