The Times October 07, 2006

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

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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