Goals, Methods, and Progress in Neuroeconomics

Abstract

Neuroeconomics shares the main goals of microeconomics: to understand what causes choices, and the welfare properties of choice. The novel goal is linking mathematical constructs and observable behavior to mechanistic details of neural circuitry. Several complementary methods are used. An initial insight from neuroscience is that distinct systems guide choice: Pavlovian and instrumental conditioning (learning) of state-value and response-value associations, overlearned habits, and model- (or goal-) directed value that requires deliberation. These systems can differ economically from rational choice—for example, habitual choices have low utility and price elasticities, whereas model-directed values are often constructed preferences. Neuroeconomics also provides evidence of situations in which utility maximization either works well (in simple binary choice) or benefits from the introduction of behavioral constructs. Neuroeconomics is well equipped to guide the theory of how choices depend on mental states, such as fear or cognitive load. Examples include extensive studies of risk and time preference, finance, and neural decoding of private information.