The Neuroeconomics of Fairness
Daniel O'Connor | Integral Ventures, LLC
Thanks to Decision Science News for a link to this study by Princeton researchers that appears to provide neurological evidence of the blending of thought and emotion in economic decision making.
The study focused on an example of decision-making called the "ultimatum game," in which two strangers meet and have a chance to split $10. One person is designated the "proposer" and offers some portion of the money to the "receiver." If the receiver accepts the offer, both collect the money as proposed; if the receiver rejects the offer, neither receives anything. The game is played with the explicit stipulation that it is a one-time interaction.
Standard economic theory suggests that the proposer should always offer $1 or some minimal amount and that the receiver should always accept, preferring to receive $1 than nothing. Many previous studies, however, have shown that people often reject what they see as unfair offers, foregoing profit and denying a windfall for the other player.
Actually, I don't think standard or even non-standard economic theory implies that "the proposer should always offer $1 or some minimal amount." A more generous reading of economic theory would have the proposer seeking to maximize his/her gain in light of the receiver's potential responses to an offer. After all, the offer must be accepted by the receiver in order for the proposer to get anything at all.
To claim that the only rational offer is that of $1 or something similarly minimal is to imply that it is also rational for someone to demand a new car for $1,000 and expect the salesperson to oblige. It would seem to be more rational for the proposer to offer an even split of $5 each based on the rational expectation that the relatively fair-minded receiver will almost certainly accept the offer and both parties will be enriched. For example, a 90% chance of getting $5 is more valuable than a 20% chance of getting $9. Moreover, one could also argue that it is less than rational for proposers to offer anything less than $9, given that such an offer has perhaps a 100% chance of being accepted and would still represent a gain, in fact a veritable gift, of $1 for the proposer. Nevertheless...
In their study, the Princeton researchers asked people to play the ultimatum game while the receiver's brain was scanned using functional magnetic resonance imaging (fMRI), a technology that allows researchers to see what brain areas are active at all moments during the study. They found that the more unfair the offer, the more activity they saw in an area called the anterior insula, which is associated with disgust and other negative emotions.
Another brain area, the dorsolateral prefrontal cortex, which is associated with working memory and deliberative thought, also responded to unfair offers. When the researchers averaged the results from 19 subjects, who each played 10 rounds of the game with different proposers, they found that the activity of the emotion area exceeded that of the deliberative area in cases when the subjects rejected the offers. The reverse was true when they accepted offers.
"It is not only telling us that there is an emotional response but that there seems to be a competition between these different considerations or ways of processing the situation," said Jonathan Cohen, who directs Princeton's Center for the Study of Brain, Mind and Behavior and is a co-author of the study.
Great stuff. But I wonder what they would find if they performed fMRIs on the proposers as well. Would they find elevated activity in the anterior insula--associated with disgust and other negative emotions--when the proposers were acting at their greediest? Surely there is some disdain, if not outright disgust, in the mind of any person who makes an extremely unfair offer to another person as if this other person deserves no better consideration.
Regardless, we seem to have the beginnings of a Neuroeconomics of Fairness to add to our growing list of interesting lines of research. If researchers would then cross-reference results like these with the results of behavioral economics experiments and psychological assessments--e.g., personality type, adult developmental stages--we could greatly enrich our understanding of the value functions used by market participants and economic policy makers.
© 2005 by Daniel J. O'Connor. All Rights Reserved.
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