The Times October 07, 2006

Why say no to free money? It's neuro-economics, stupid

Studies show how the brain lets the emotions override common sense when reaching some tough decisions. Our correspondent reports on the 'ultimatum game'

IMAGINE that you are sitting next to a complete stranger who has been given £10 to share between the two of you. He must choose how much to keep for himself and how much to give to you.

He can be as selfish or as generous as he likes, with one proviso: if you refuse his offer, neither of you gets any money at all. What would it take for you to turn him down?

This is the scenario known to economists as the ultimatum game. Now the way we play it is generating remarkable insights into how the human brain drives financial decisionmaking, social interactions and even the supremely irrational behaviour of suicide bombers and gangland killers.

According to standard economic theory, you should cheerfully accept anything you are given. People are assumed to be motivated chiefly by rational self-interest, and refusing any offer, however low, is tantamount to cutting off your nose to spite your face.

Yet in practice derisory offers are declined all the time. Indeed, if the sum is less than £2.50, four out of five of us tell the selfish so-and-so to get lost. We get so angry at his deliberate unfairness that we are prepared to incur a cost to ourselves, purely to punish him.

Homo sapiens is clearly not Homo economicus, the ultra-rational being imagined by many professional economists.

An emerging fusion of economics, evolutionary psychology and neuroscience — neuro-economics in the jargon — is now starting to tell us why this is so.

Scientists yesterday published new evidence in the journal Science, showing not only how the brain makes difficult decisions but also that our choices can be changed when a critical part of the brain is switched off with magnets.

The researchers, Ernst Fehr and Daria Knoch, of the University of Zurich, used a technique called transcranial magnetic stimulation to tire out and thus temporarily suppress a part of the brain called the dorsolateral prefrontal cortex (DLPFC). Functional magnetic resonance imaging scans show that this is particularly active when people play the ultimatum game.

When the right DLPFC is shut down, the way they play starts to change. When given a low offer, they still feel it is deeply unfair. But, instead of rejecting it as they usually would, their selfish, ultra-rational side wins out over their emotional reaction against the other player’s meanness. They accept any amount of cash, however small.

The implication is not that the DLPFC is generating a sense of injustice — that was still there even when the region was knocked out. Rather, it seems to be more like an executive decision-maker, balancing the claims of emotion and reason.

“It is as if it is the referee that enforces fairness, and overrides narrow self-interest,” said David Laibson, Professor of Economics at Harvard University.

The results tend to support a very different theory of human behaviour from that favoured by classical economists. Our decisions seem not to be determined mainly by reason, but by a continuous battle between two sides of our psyches that are rooted in different mental circuits.

One of these is rational, controlled by the cortex — the cauliflower-like outer section of the brain where reasoning takes place, which is uniquely developed in humans. The other, however, is emotional, governed by the limbic system — the deeper-lying brain structures such as the amygdala that are much closer in character to the brains of other mammals.

George Loewenstein, Professor of Economics and Psychology at Carnegie Mellon University, in Pittsburgh, and one of the pioneers of neuro-economics, said: “The new science of neuro-economics is lending support to a very ancient view of human behaviour. That is the idea that there is a conflict and interaction between passion, and reason and self-interest.

“The now standard view of people as rational maximisers of self-interest is a very recent view. Neuroscience is telling us that that was a bit of a diversion. The rational side is a process that sometimes overrides the dominant interest on human behaviour, which is the passionate side.”

Interestingly, the DLPFC does not develop fully until early adulthood, offering a possible explanation for adolescent selfishness — the “Kevin the teenager” phenomenon.

Why might the brain want to overrule self-interest in the first place? Colin Camerer, Professor of Business Economics at the California Institute of Technology, says that it probably evolved that way.

If we always accepted low offers for the sake of tiny gains, we would rapidly get a reputation as a soft touch. Everybody else would try to bilk us at every turn. By acting apparently against our interests, we do better in the long run. Our ancestors were better at surviving if they were bloody-minded. Professor Camerer explained: “Emotion is nature’s way of letting people know that if you’re treated badly you’ll do something about it.”

Professor Laibson said: “One prospect is that, as we understand this brain research, we will be able to go beyond tweaking the classical model and develop a much richer understanding of how people make choices.”

What is starting to emerge is a more accurate — and recognisable — picture of human nature than classical economic theory provided. In many ways, it is a positive one, helping to explain the human capacity for kindness and co-operation, and the centrality of fairness to social norms. We are not acquisitive automatons conditioned always to follow narrow self-interest.

But it also has a dark side. The depth with which we feel injustice, and the way we respond to it emotionally, rather than rationally, may also underlie extreme reactions to perceived wrongs. The gang leader who has a rival murdered over a slight to his honour and the fundamentalist who takes out his grievance against the West by becoming a suicide bomber are both particularly high-stakes players of the ultimatum game.

Professor Loewenstein said: “In a sense, suicide bombers are playing a version of the ultimatum game. Their sense of injustice is such that they are willing to pay the highest possible cost. For models of behaviour which assume that self-interest is all important, it has always been a mystery why people go to war or sacrifice themselves for their nation, their religion, or even for abstract principles. To explain these types of behaviours, we need to take account of how human actions are governed by emotion.”

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