Neuroeconomics Essay ⋆ Business Essay Examples ⋆ EssayEmpire

In 2008, students at 31 New York City high schools were offered up to $1,000 for scoring well on Advanced Placement (AP) exams. The good news is that the number of AP exams taken rose from 4,275 in 2007 to 4,620, an increase of 345. In addition, a greater number of 5s (the highest score) were posted. On the other hand, the overall number of students who passed the AP exams declined slightly, from 1,481 to 1,476.

By contrast, in Tucson, Arizona, School Superintendent Vicki Balentine announced results of the first year of a three-year plan to give 75 sophomores $100 per month for maintaining perfect attendance and at least a C minus average. Those offered the money seemed to show up more for classes and school activities than a control group that received no cash reward.

Why, despite a significant economic reward, did students perform slightly worse on the AP tests in New York? Why does the Tucson experiment appear to be yielding better results? Those are questions that the new field of neuroeconomics seeks to answer.

Neuroeconomics is the study of what happens when people make decisions about money, such as why people save, buy stocks, steal, and overspend. As Colin Camerer, George Lowenstein and Drazen Prelec note, in spite of years of a significant volume of research data, economists lack a reliable theory that explains “why stock prices fluctuate, why people trade, and why there are so many actively managed mutual funds despite poor fund performance.” These and other authors argue that one fruitful area for discovering the reasons for people’s economic decision making is neuroscience. It is possible that the brain mechanisms that underlie the psychological processes of attention and perception have direct application to economics.

Neuroeconomics is a branch of the field of “behavioral economics.” Behavioral economics uses research from such social sciences as anthropology, psychology, sociology, and biology to demonstrate how factors in these fields influence economic behavior. Neuroeconomics expands behavioral economics by using facts about brain activity.

Neuroeconomics examines specific elements of choice in decision making. These elements include risk, wishful thinking, ambiguity, expectation, time preference, and learning. In addition to exploring these elements of choice, neuroeconomics seeks to discover the neural correlates of those elements of choice. By examining those relationships between brain functioning and decision making, neuroeconomists can better understand sound financial judgments as well as what processes might impair those judgments.

Neuroeconomists are challenging standard economic assumptions that decision making is a simple matter of integrated and coherent utility maximization. Peter Politser argues, however, that despite the promise of neuroeconomics for understanding economics decision making, the field currently suffers from inconsistent and contradictory findings across studies. Part of the reason for the lack of clarity in these findings is that because neuroeconomics is a new field, it lacks clear methodological guidelines for studying and interpreting neuroeconomic phenomena.

Recent developments bode well for seeing those guidelines develop. For example, George Mason University hosts the Center for the Study of Neuroeconomics (CSN). CSN is a research center and laboratory dedicated to “the experimental study of how emergent mental computations in the brain interact with the emergent computations of institutions to produce legal, political, and economic order.” The Camerer Lab at the California Institute of Technology is also doing significant research in neuroeconomics. In addition, the first handbook of the field, Neuroeconomics: Decision Making and the Brain, was recently published in association with the Society for Neuroeconomics.

In the meantime, Whitney Tilson, who helped create the New York City incentive program, expects improvement in 2009, and hoped more students would sign up as word spread about the financial incentive to take AP tests. Program organizers noted the cash incentive program would be tweaked for next year; the rewards for 4s and 3s would most likely be lowered to $500 and $250 (scores of 5 will still net $1,000), a move that most neuroeconomists would likely approve.

Bibliography:

Camerer, G. Lowenstein, and D. Prelec, “Neuroeconomics: How Neuroscience Can Inform Economics,” Journal of Economic Literature (v.XLIII, 2005);
Glimcher, C. Camerer, E. Fehr, and R. Poldrack, Neuroeconomics: Decision Making and the Brain (Elsevier Academic Press, 2008);
Gootman, “Mixed Results on Paying City Students to Pass Tests,” New York Times (August 19, 2008);
Loewenstein, S. Rick, and J. D. Cohen, “Neuroeconomics,” Annual Review of Psychology (v.59, 2008);
Lynn Nadel, ed., Encyclopedia of Cognitive Science (Macmillan, 2003);
Politser, Neuroeconomics: A Guide to the New Science of Making Choices (Oxford University Press, 2008).

This example Neuroeconomics Essay is published for educational and informational purposes only. If you need a custom essay or research paper on this topic please use our writing services. EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.