Trader’s Narrative

The New Yorker magazine has a fascinating article about the burgeoning field of neuroeconomics. As the name implies it is the convergence of neuroscience and economics. This new field doesn’t pretend to nullify the foundation of traditional economics so much as introduce whole new ranges of variables (such as biological and chemical) which affect our decision making.

Here’s an experiment that showed how the brain can be tricked without altering the pay-off of a game:

Trust plays a key role in many economic transactions, from buying a secondhand car to choosing a college. In the simplest version of the trust game, one player gives some money to another player, who invests it on his behalf and then decides how much to return to him and how much to keep. The more the first player invests, the more he stands to gain, but the more he has to trust the second player. If the players trust each other, both will do well. If they don’t, neither will end up with much money.

Fehr and his collaborators divided a group of student volunteers into two groups. The members of one group were each given six puffs of the nasal spray Syntocinon, which contains oxytocin, a hormone that the brain produces during breast-feeding, sexual intercourse, and other intimate types of social bonding. The members of the other group were given a placebo spray.

Scientists believe that oxytocin is connected to stress reduction, enhanced sociability, and, possibly, falling in love. The researchers hypothesized that oxytocin would make people more trusting, and their results appear to support this claim. Of the twenty-nine students who were given oxytocin, thirteen invested the maximum money allowed, compared with just six out of twenty-nine in the control group. “That’s a pretty remarkable finding,” Camerer told me. “If you asked most economists how they would produce more trust in a game, they would say change the payoffs or get the participants to play the game repeatedly: those are the standard tools. If you said, ‘Try spraying oxytocin in the nostrils,’ they would say, ‘I don’t know what you’re talking about.’ You’re tricking the brain, and it seems to work.”

Here’s the whole article: Mind Games