Neuroeconomics How Executives Think

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"We believe that this activity reflects not just the actual outcomes, but also depends on what your expectations were," says Robb Rutledge, a graduate student running this experiment. "We hypothesize that this signal is then used to update your expectations, to learn the value of actions so you make better choices in the future."

I'm also being tested in three days of scans for how risk-adverse I am, and how I make decisions on consumer goods, such as choosing between a DVD of Pirates of the Caribbean versus a CD of the hip-hop artist Axon.

Results are pending, though I suspect my brain was more interested in buying Pirates, with all due respect to Axon.

Rutledge and his colleagues work in the laboratory of neuroscientist Paul Glimcher, author of Decisions, Uncertainty, and the Brain: The Science of Neuroeconomics.

Glimcher is a strong proponent of the idea that brain science can elucidate certain human behaviors that economics theory cannot entirely explain. For example, Glimcher asks: "Why do so many traders buy stocks when prices are high and sell when they're low?"

Good question, I responded, remembering a certain technology stock I bought in the late 1980s.

One explanation is that economic theory has no way of testing or truly understanding how different people assess value, says Glimcher, or how to assign probabilities to outcomes based on these values.

Glimcher says this is critical in understanding how we make choices and execute decisions. "Bill Gates will value a dollar differently than I will," he says. "What is happening in his brain versus mine when he's deciding what to do with that dollar?"

Also, how do personal values and decisionmaking pathways in brain circuitry affect risk-taking, and how are repeated experiences with relative values learned by our gray matter?

"Many of us in neuroeconomics believe that we are on the verge of a major new theory using what happens in the brain to explain economic behavior," says Glimcher.

His enthusiasm has not entirely caught on with economists. N.Y.U. and Tel Aviv University economist Ariel Rubinstein has criticized the field as overselling itself because it relies on experiments run on small numbers of subjects—usually students—and uses a machine that does not accurately capture the speed of decisions made in the brain. The brain usually acts at the speed of electrical and chemical signals, while it takes several seconds for blood to reach an area of the brain that has been activated.

Glimcher concedes that the field is still establishing itself. "These are early days," he says, although he contends that the results are already proving insightful.

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