Neuroeconomics Insights for Decision Analysis

Abstract

Neuroeconomics is a developing field that utilizes methodologies from neuroscience, psychology and economics to study the brain networks that are activated during decision making. In this chapter, we outline the primary methods used by neuroeconomics and examine how this field can help build better models of decision‐making. First, we review research related to valuation processes and biases that occur in the brain, and discuss the properties of the human reward circuitry which reacts to both the anticipation and receipt of financial and hedonic rewards. Next, we discuss the balance between emotional and cognitive control areas in the brain, which have a central role in behavioral framing effects. We conclude with a discussion of how a better understanding of the brain processes can increase our knowledge of why decision‐making in the real world often strays quite far from the predictions made by standard utility maximization accounts.

Managerial decision making in marketing: The next research frontier

“…The method of functional magnetic resonance imaging (fMRI) is commonly used for the study of decision making. This method leverages the physiological fact that changes the neural blood flow lead to corresponding changes in local magnetic properties of the brain, which can be detected by an MRI machine (Hytonen & Sanfey., 2011). In this way, which part(s) of the brain are activated can be observed.…”

“…Severe losses can cause increased activity in emotional regions in the brain (e.g., in the amygdala), leading to exaggerated levels of risk aversion. Moreover, a phenomenon like framing can be explained by emotions (Hytonen & Sanfey, 2011). Overly strong emotional reactions can be countered with emotionregulating strategies.…”