Thursday, February 19, 2009
Neuroeconomics: An Introduction
Drazen Prelec, a professor at Sloan School of Management, gave a talk on what the new field of neuroeconomics is.
Using three case studies, Prelec illustrates how “neuroeconomics picks up some of these violations of rationality, trying to understand where in the brain we can get a deep understanding of what’s going on.” In a notable instance, subjects sipped different wines (through a straw) in the fMRI, and were asked to rate them. They were told they were drinking wine that ranged in price from $5 to $90. The “dirty trick was the $5 and $45 wines were the same, as were the $10 and $90 wines.” Not surprisingly, “ratings were massively influenced by price,” so the $90 wine was considered exceptional.
What was surprising, says Prelec, was that “the brain lies also.” An area behind the forehead, the medial prefrontal cortex, which is associated with the perception of value, burst into more activity when the subject experienced the “$90” wine than with the exact same “$10” wine. It seems as if the very idea of quality, or value -- often a marketing ploy -- makes a product like wine more enjoyable.