Introduction To Neuroeconomics
Neuroeconomics - the conjunction of two very different disciplines that weren’t thought to have a connection earlier. So, what exactly is neuroeconomics? Neuroeconomics is the study of the brain's functioning behind the decision-making done as consumers. This way, the factors responsible for influencing a consumer’s decision can help predict the future of economics.
The central areas of studies in neuroeconomics include:
Social decision making skills - The game theory is popularly associated with the social aspect of making decisions. It talks about the mathematical application of how players have independent strategies that they apply in their best self-interest. This way, there is always a winner (who achieves their best self-interest) and a loser (who faces losses as it was not in their best self-interest). Neural studies can analyze these patterns of behavior.
Risk-based decision-making - even though consumers are presented with various choices, behavioral concepts like risk aversion or incomplete information can affect the rationality of a consumer and how they choose to respond to the options presented to them. In this case, the choice of architecture would hold great significance in influencing the behavior of individuals. An example is the nudge theory, through which the government tries to influence people to follow/practice certain acts. That is why stairs have the number of calories burnt with each step written on them to induce healthy activities.
Intertemporal choices - A good or service's value to a consumer will vary at different points in time. For example, the need for a specific type of medicine would be more useful during sickness than otherwise. This study is conducted to understand brain activity during unexpected situations.
The models created in neuroeconomics are more based on cognitive processing and choices than the traditional economic theories. Formal decision-making is assumed and hence made under scientific (biological) intentions.
An example of a general neuroeconomic model is shown below:
Source: https://www.researchgate.net/figure/The-neuroeconomic-model-for-decision-making_fig9_256308148
According to an article published by Business Standard, a real-life application of neuroeconomics can be seen in Worxogo’s product, Artificial Intelligence (AI). This AI is said to help boost employees’ performances by using predictive analytics and other data tools by studying each employee’s behavior and productivity based on the choices made and under which circumstances (and factors) these choices were made.
In conclusion, neuroeconomics can act hand in hand with behavioral economics to make a change economically and socially in society. Neuroeconomics can be helpful in many fields, such as marketing and the advancement of technology, such as developing new AI accordingly.
Written by Arushi Gupta | Proofread by Yasmin Uzykanova
