https://www.coursera.

org/learn/neuroeconomics/lecture/LRRlW/neuroeconomics-as-a-multidisciplinary-
field

Vasily Klucharev

I'm really happy to give you an introduction to Neuroeconomics. This is exciting, new interdisciplinary
field that combines neuroscience, economics, psychology together. In order to build a new unified
theory of human decision making. So during this course. I will give you an introduction, so I will not give
you all fields or directions in the neuroeconomics. So today, I will try to present you main assumptions
of neuroeconomics. During the next lecture, I will give you major brain imaging techniques of
neuroeconomics. So that will be the Module I of this course. During the Module II, I will present you the
major models of neuroeconomics and we will understand how brain makes decisions. During Module
III, we will focus on emotional mechanisms of decision making. So we will discuss how effects,
emotions modulate and program our decisions. And finally, during the Module IV. We'll discuss how
decisions are made in various social contexts. We will also focus on the evolutionary basis of decision
making. We will discuss some similarities of our decision making and animals' decision making. Can we
find similar financial decisions in humans and monkeys? So that will be the topic of our final module. So
now, I will give you few hints what you can expect in this course and [UNKNOWN] what you shouldn't
expect from this course. So first of all, this is a relatively short introduction to neuroeconomics. If you
would like to read about some specific directions in neuroeconomics, you will have to read additional
literature. Of course, I will focus on limitations of neuroeconomics. Neuroeconomics uses a lot of brain
imaging techniques. All of them are limited, so at the moment perhaps we cannot address all questions
related to decision making using neuroeconomics approach. And you will face trivial and nontrivial facts
as neuroscientists. You can, a bit irritated by my version of neuroscience, a simplified version of
neuroscience. As economists, you can be irritated by the simple version of economics in this
course. But I do it on purpose, because we have a very multidisciplinary audience. So in order to build a
joint language, to merge our group together, I will try to use are some simplified terms and concepts. To
create a common theory of decision making. So we will discuss various paradigms, and we also focus
on quite difficult papers. So be prepared that majority of neuroeconomics papers are written by
neuroscientists. And they use quite specific language, so it can be quite complicated. It can have a lot
of technical details. So be prepared to read quite complex papers. Please do not expect the unified
series of Neuroeconomics. This is a very young field, so it doesn't have right now a unified theory, but
have a lot of different concepts that in the future perhaps. We'll be organized into a unified theory of
human behavior. So we will not discuss all aspects of neuroeconomics within this course. And
unfortunately, because this field is very young, there is no one single easy to read handbook. So be
prepared to read quite complex papers. So, overall, neuroeconmics is based on a simple, but
astonishing hypothesis. This hypothesis is very nicely formulated by Francis Crick, a Nobel Prize
winner. We just suggested that our mental activity, our decisions, is nothing more but the activity of our
brain. So our mental activity is simply a biochemical process in our neurons, in our neuronal
percolation. This a very simple idea. But it can be quite easy to accept if when you're a scientist. But at
the same time it can trigger conflict for social scientists. So from this perspective our decisions, our
mental activity is nothing more but the activity of our brains. And if you are against this idea, if you are
against this astonishing hypotheses you anyway have to adopt this idea for this course. So this
basically is a foundation of neuroeconomics. So strictly speaking, neuroeconomics is a field combining
psychology, neuroscience, biology, and economics. Together to build a unified theory of human
behavior. Of course, neuroeconomics focuses on decision making. And we will dedicate this course to
the neurobiological aspects of decision making. Neuroeconomics is a very much influenced and
dominated by neuroscience. So, already now in the key handbooks on cognitive neuroscience, you can
find a chapter on neuroeconomics. But of course, there are also books specifically published by
neuroeconomists. I strongly recommend you to read books created by Paul Glimscher or by key
neuroeconomists. I will give you some hints which book I would recommend you to read during the
course.
5:27
Of course, we can use another label for neuroeconomics, neuroscience of decision making. Actually,
this second label is becoming more and more popular. So we can use either the term neuroeconomics
or the neuroscience of decision making. Both terms tries to emphasize that neuroeconomics focuses on
the neurobiological aspects of decision making. So neuroscience is a field of biology that traditionally
focus on nervous system and this is a branch of biology. So traditionally, neuroscience investigates
neural networks and activity of the neural networks underlying our behavior. So for example here, we
can trace all neurons that are programming our voluntary movements. This network starts in our
sensory neurons. And next the information is translated to cerebellum, to thalamus,to the motor cortex,
and the motor cortex send information back to muscles. So in simple situations, when we program very
simple voluntary movements. A limited number of neurons is involved into the programming of our
motion. If we have more complex, goal directed movements. Of course, more neuronal populations are
involved. And it can be a quite complex neuronal network. But neuroscience suggests if we would
understand how this network is working, we can understand voluntary movement. And we can
understand how decisions are programmed. For neuroscience, it's enough to understand their
neurobiological machinery behind the decision making to fully understand decisions. So, from the
neuroscience perspective, our decisions are programmed by neural networks. So, somewhere in this
complex network our decisions are programmed and sent to the motor system. Of course, advanced
neurons are communicating with each other by synapses. So somewhere in this synapses, where
chemicals are produced for communication between neurons, our decisions are programmed. So
traditionally, our behavior has been studied by various fields of science. So of course, we understand
that our decisions, our behavior, is affected by our genes, by our neural activity, by the activity of the
whole brain. By our cognitive system, by the society, by social context, and by the environment. So
traditionally all these aspects of decision making were studied by different fields. By neuroscience, by
cognitive psychology, by social sciences, by economics. What is ambition of neuro-economics, they'll
merge all those fields together and create a unified theory of decision making. So this is a very
ambitious plan, but this is a very exciting and provocative idea. And i hope that you will also get
this excitement about this new proactive field from this course. So what is reason to combine
economics, psychology and neuroscience together. I think there is a very fundamental reason to do it,
so all of these sciences have own biases. They are very much limited and narrowed by own field. So
they have certain assumptions that are quite often violated by different fields of science. So I'll just give
you three examples how very important measure assumptions of different sciences are
violated. Questioned by different fields of science. So for example, economics. Normative theory
economics suggest that we are rational it will make our decisions rationally. So it suggests that our
decisions are consistent and logical. Economists in this audience will no famous example. So-called
Asian disease example, illustrating a lack of rationality in our decision making. But biologists and people
from, other students from other disciplines may have, not know. So I will once again mention this
famous example, so-called, Asian disease example. Imagine that there is an outbreak of a strange
Asian disorder in the United States. This disorder is expected to kill 600 people.
9:58
Imagine that you're on the special medical committee. And this committee has to select one of the
programs to treat this disorder. According to the, to the Program A.
10:11
If Program A is adopted, 200 people will be saved. If Program B is adopted, there is a 1 3rd probability
that 600 people will be saved and a 2 3rds probability that no people will be saved. So, which program
would you select?
10:29
Think for a moment.
10:31
A lot of people, and many studies show this, prefer the Program A, because this program guarantee
that 200 people will be safe. But let's now make a decision and select between two other
options. Imagine that you're offered by two other programs. If you will adopt Program A, 400 people will
die.
10:55
If you will adopt the Program B, there is a 1 3rd probability that nobody will die, and 2 3rd probability
that 6, 600 people will die. So which program would you select now?
11:07
Think for a moment. And many studies show that people prefer program B here. But come on, let's talk
for a moment, and compare these two programs. So, there's two versions of this experiment. You can
see here this are identical options. Just make you look to the program A. In the first example, if Program
A is adopted, 200 people will be saved. But this is identical program to the Program A below, that states
that if it is adopted 400 people will die. They're two identical programs, but they're framed in a different
way. So in the first case, it is framed as in their gain demands. So 200 people will be saved. But in the
second case, it is framed in the loss domain. It suggest that 400 people will die, but these are identical
programs. So surprisingly, simply the framing of the options can change our decisions. So, our
rationality is quite limited. Of course, we cannot say that we are logical and we are consistent. Our
decisions are very much dependent on the framing of the options. So, psychology, many times
questions the assumptions of the normative economics that we are rational, that we make rational
decisions.
12:26
But psychology itself suffers from some old biases and I like so called circular reasoning problem
criticism. Psychology investigates our behavior. And based on our behavior suggests some
cognitive processes, cognitive systems that can modulate our decisions. Memory, attention can
modulate our decision. But, psychologists study our behavior. And based on behavior, suggest some
cognitive systems. Cognitive process. But in fact, they explain behavior by behavior.
13:04
Does it bring us some new insights to the mechanisms of our behavior?
13:10
Should we go step lower to understand our mental activity? Lower from our behavior, for example, to
the neural level, in the same way as nuclear physics. In order to explain our macro level physics, try to
study the structure of our atoms, atomic structure. And this perspective would bring us completely new
insights to the micro level. In the same way, to avoid the circular reasoning problem, we have to go one
level lower. For example, explain our behavior, our decisions, by neurologic activity. That will bring us
new insights to the actual mechanisms of our behavior and our decision making. At the same time,
neuroscience suffers a lot from the tradition to investigate the single brain. So, neuroscience is very
much egocentric. Neuroscientists really believe that if we will investigate the single brain of single
individual. We can understand the brain mechanisms of decisions of our behavior. But in reality,we
never make our decisions alone. In reality, we make our decisions in social context, in interactions with
others. I really like this experiment conducted by a post doc in Cambridge. So, a very simple exp,
experiment. But it is very illustrative. Imagine is that, this scientist. Just feeding ducks in Cambridge in
the, in a lake. So he feeded the ducks with a constant rate two grams per five seconds. And his friend
on the other side of the lake feeded also ducks, but with a slower rate, only two grams per ten
seconds.
14:56
So what should you do as a small duck. Perhaps you will go to the place where there is more food
available. But if all ducks goes there you will have a shortage of food. It will be smart to go to the side B
where there is no ducks. So your decision depends very much on the decisions of others. And if we will
make a list of the distribution of ducks in this experiment. Very quickly, the number of ducks is
distributed in a very rational way. According to the natural equilibrium suggested by decision theory, by
game theory. So, when you make your decision, your decision is very much dependent on decisions of
others. And it's very nicely illustrated by economics and also by psychology. So in order to understand
our decisions, we have to understand how decisions are made in social context. how to we take into
account decisions of others? So altogether, neuro-economics is trying to combine various fields. To
build a unified theory of decision making. Now genetics, economics, psychology, neuroscience are
merging together to build a unified theory of decision