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Neural Computation Underlying Individual and Social Decision-Making
Ming HsuHaas School of Business
University of California, Berkeley
Neesweek, 09.August 2004Forbes, 01.September 2002
The Big Picture
Human Behavior
Economics: formal, axiomatic, global
Psychology: intuitive, empirical, local
Neuroscience:biological, computational evolutionary
The Big Picture
Human Behavior
Economics: formal, axiomatic, global.
Psychology: intuitive, empirical, local.
Neuroscience:biological, circuitry, evolutionary.
Neuroeconomics
“A mechanistic, behavioral, and
mathematical explanation of choice that transcends [each field separately].”
- Glimcher and Rustichini. Science (2004)
The Big Picture
Human Behavior
Economics: formal, axiomatic, global.
Psychology: intuitive, empirical, local.
Neuroscience:biological, circuitry, evolutionary.
Neuroeconomics
Studies how the brain encodes and computes
values that guide behavior.
Allows us to improve models, design markets/AI, create new diagnostic tools
Tools That We Used
Special Populations Functional Magnetic Resonance Imaging (fMRI)
7
fMRI Scanner
fMRI: Changes in Magnetization
Basal State
Activated State
Agenda
• Individual Decision-Making– Ambiguity aversion– fMRI and brain lesion
• Sociopaths– Social preferences– Special population
• Take-aways
Simple Decisions: Blackjack
Simple Decisions: Blackjack
Stock?Bond?
Domestic?Foreign?
Stock?Bond?
Domestic?Foreign?
DiversifyThink long-term
More Complicated: Investing
Whether?Who?When?Where?
37% Rule (Mosteller, 1987)
“Dozen” Rule (Todd, 1997)
Complicated: Love/Marriage
Little knowledge of probabilities
Simple Complex
Most of life’s decisions
Precise knowledge of probabilities
Uncertainty about uncertainty?
Ellsberg Paradox
1961
Urn I: Risk
Most people indifferent between betting on red versus blue
5 Red5 Blue
?
Urn II: Ambiguity
Most people indifferent between betting on red versus blue
? ? ? ??? ???
10 - x Redx Blue
Choose Between Urns
Many people prefer betting on Urn I over Urn II.
? ? ? ? ??? ???
Urn II(Ambiguous)
Urn I(Risk)
Where Is The Paradox?
P(RedII)=P(BlueII)
P(RedII) < 0.5
P(BlueII) < 0.5? ? ? ? ??? ???
P(RedI) = P(BlueI)
P(RedI) = 0.5
P(BlueI) = 0.5
P(RedI) + P(BlueI) = 1
P(RedII) + P(BlueII) = 1
Urn II(Ambiguous)
Urn I(Risk)
Simple Complex
Verizonor
Deutsche Telekom
Jenniferor
Angelina
Not ambiguityaverse
Portfolio Weights: U.S., Japan, and U.K. Investors
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
U.S. Japan U.K.
Proportion of portfolio
CanadaGermanyFranceU.K.JapanU.S.
Verizon or Deutsche Telecom?
French & Poterba, American Economic Review (1991).
fMRI Experiment
Hsu, Bhatt, Adolphs, Tranel, and Camerer. Science. (2005)
fMRI Experiment
Hsu, Bhatt, Adolphs, Tranel, and Camerer. Science. (2005)
Expected Reward Region
€
y i, jt,v = α + β amb A(i, j, t) + β riskR(i, j, t)
+δE(i, j, t) + πW (i, j, t,v) + ε i, jt,v
y - Brain response A(.) - Ambiguity trialsR(.) - Risk trialsE(.) - Expected value of choicesW(.) - Nuisance parameters
Lower Activity under Ambiguity%
Sig
na
l Ch
an
ge
Region Reacting to Uncertainty
€
β amb > β risk
N.B. This region does not correlate with expected reward.
Orbitofrontal Cortex
€
y i, jt,v = α + β amb A(i, j, t) + β riskR(i, j, t)
+δE(i, j, t) + πW (i, j, t,v) + ε i, jt,v
y - Brain response A(.) - Ambiguity trialsR(.) - Risk trialsE(.) - Expected value of choicesW(.) - Nuisance parameters
Brain Imaging Data
Behavioral Choice Data Stochastic Choice Model
Link Between Brain and Behavior
Early
Late?
A Signal for Uncertainty?
Lesion Subjects
Orbitofrontal Control
Lesion Experiment
100 Cards
50 Red50 Black
100 Cards
x Red100-x Black
Choose between gamble worth 100 points OR
Sure payoffs of 15, 25, 30, 40 and 60 points.
Estimated Risk and Ambiguity Attitudes
Orbitofrontal Lesion
Control Lesion
Orbitofrontal lesion patients more rational!
Linking Neural, Behavioral, and Lesion Data
Brain Imaging Data
Behavioral Choice Data Stochastic Choice Model
Imputed value
OFC lesion estimate = 0.82
Agenda
• Individual Decision-Making– Ambiguity aversion– fMRI and brain lesion
• Sociopaths– Social preferences– Special population
How neurosciencecan help economics
How economics can help neuroscience
Norman BatesPsycho, 1960
Criminality
• Estimated psychopathy rates among prisoners (various times after 1990)– North American: 20.5% (2003 PCL-R
manual)– Canada: 15 – 25% (federal prison)– Iran: 23%– UK: 26%
• Younger beginnings (14 y.o. vs. 28 y.o. )• “Instrumental” homicides
Measuring Psychopathy
• Psychopathy Checklist-Revised, Screening version (PCL-R SV)– 24 point scale: 12 traits scored 0, 1, 2
• Two factors– Interpersonal-affective factor (6 traits)– Impulsivity-social deviance (6 traits)
• Impulsivity-social deviance (Factor 2) is less important for us– Except for safety concerns, of course!
Interpersonal-affective factor
• Callous and unemotional• Superficial charm• Grandiosity• Lack of empathy and shallow affect• Deception and manipulativeness• Lack of remorse• Not accepting responsibility
Characterizing Psychopathy using Economic Games
• What we’re doing– Characterize behavior in these individuals– Provide a quantitative measure of (social)
behavior
• Where we want to go– Use this measure to search for neural and genetic
correlates of psychopathy– And other psychiatric and neurological diseases
Responder Game
Your payoff
Other’s payoff
Your payoff
Other’s payoff
B: Costless punishment
Generous
Selfish
B: Costly Reward
Generous
Selfish
Responder Game: Intentions Matter
Responder Game: Intentions Matter
Power matters?SPs (only): Refuse to let Player B choose
Responder Game: Intentions Matter
Power matters
I would not give control over to another person, even for more money.
Responder Game: Intentions Matter
Power matters?
I would not give control over to another person, even for more money.
Seems like A1 is the more “dominant.”
Take-aways
• Neuroeconomics is possible– Studying neural mechanisms of economic decision-making– Nascent field, only about 10 years old– Much progress during that time
• Many open questions, opportunities– Moral decision-making– Strategic thinking– Financial bubbles– http://neuroecon.berkeley.edu
Eric Set
Edelyn Verona
Colin Camerer
Ralph Adolphs
Daniel Tranel
Steve Quartz
Peter Bossaerts
Meghana Bhatt
Cédric Anen
Shreesh Mysore
Acknowledgements