Its a recent development that economists are turning to neuroscience to inform and enrich economic theory. One controversial aspect is the potential use of neuroscience data to draw conclusions about welfare that go beyond traditional revealed preference. It is nicely summarized by this quote from Camerer, Lowenstein, and Prelec.
The foundations of economic theory were constructed assuming that details about the functioning of the brain’s black box would not be known. This pessimism was expressed by William Jevons in 1871:
I hesitate to say that men will ever have the means of measuring directly the feelings of the human heart. It is from the quantitative effects of the feelings that we must estimate their comparative amounts.
Since feelings were meant to predict behavior but could only be assessed from behavior, economists realized that, without direct measurement, feelings were useless intervening constructs. In the 1940s, the concepts of ordinal utility and revealed preference eliminated the superfluous inter- mediate step of positing immeasurable feelings. Revealed preference theory simply equates unobserved preferences with observed choices…
But now neuroscience has proved Jevons’s pessimistic prediction wrong; the study of the brain and nervous system is beginning to allow direct measurement of thoughts and feelings.
There are skeptics, I don’t count myself as one of them. I expect that we will learn from neuroscience and economics will benefit. But, I think it is helpful to explore the boundaries and I have a little thought experiment that I think sheds some light.
Imagine a neuroscientist emerges from his lab with a theory of what makes people happy. This theory is based on measuring activity in the brain and correlating it with measures of happiness and then repeated experiments studying how different activities affect happiness. For the purposes of this thought experiment be as generous as you wish to the neuroscientist, assume he has gone as far as you think is possible in measuring thoughts and feelings and their causes.
Now the neuroscientist approaches his first new patient and explains to him how to change his behavior in order to achieve the optimum level of well-being according to his theory, and asks the patient to give it a try. After a month of trying it out, imagine that the patient comes back and says “Doctor, I did everything you prescribed to the letter for one whole month. But, with all due respect, I would prefer to just go back to doing what I was doing before.”
Ask yourself if there is any circumstance, including any imaginable level of neuroscientific sophistication, under which after the patient tries and rejects the neuroscientist’s theory, you would accept a policy which over-rode the patient’s wishes and imposed upon him the lifestyle that the neuroscientist says is good for him.
If there is no circumstance then I claim you are fundamentally a revealed preference adherent. Because the example (again, I am asking you to be as charitable as you can be to the neuroscientist) presents the strongest possible case for including non-choice data into welfare considerations. We are allowing the patient to experience what the neuroscientist’s theory asserts to be his greatest possible state of well-being and even after experiencing that he is choosing not to experience it any more. If you insist that he has that freedom then you are deferring to his revealed preference over his “true” welfare.
That’s not to say that you must reject neuroscience as being valuable for welfare. Indeed it may be that when the patient goes his own way he does voluntarily incorporate some of what he learned. And so, even by a revealed preference standard could say that neuroscience has made him better off. But we can clearly bound its contribution. Neuroscience can make you better off only insofar as it can provide you with new information that you are free to use or reject as you prefer.
Drawing: Anxiety or Imagination from www.f1me.net
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May 11, 2011 at 2:38 am
PR
If the neuroscientist’s method is infinitely sophisticated and really discovers the secret of happiness (or approaches it infinitely close), then supposedly the patient would not come back and reject the prescription?
I think neuroscience’s real problem is that at most it can only discover the current state of human brain/human irrationality, but human brain/reasoning can improve itself and increasingly approach rationality. Any theory based on today’s human brain will fail tomorrow. Deep Blue can only discover the current best strategies for chess, but supposedly there should be a solution to the game.
May 11, 2011 at 9:11 am
Ben
What neuroscientist told you the human brain can approach rationality?
May 11, 2011 at 7:04 pm
Brad
Nice thought experiment. It makes me think that the real dilemma will come when dealing with time inconsistency. What if the patient doesn’t like the ‘treatment’ in the short term, but after some length of time is glad that he was forced to take it? We seem to be OK with this kind of coercion when it comes to addicts and children. I could use a little coercion myself sometimes. But it makes it hard to judge what the patient’s ‘true’ choice is if he could change his mind at any point in the future (even multiple times!).
May 12, 2011 at 1:03 pm
Barkley Rosser
It should be kept in mind that there is a third source of data that may be in conflict to some degree with observed choices and observations of firing rates in the identified pleasure centers of the brain. That is replies people give to questions in surveys of happiness and satisfaction (which correlate about .85, thus strongly but imperfectly). How strongly do we recommend that people pursue activities that they seem to say make them happy, particularly if these contrast with the other data sources?
August 12, 2015 at 8:39 am
Niro K
I think its less about “the planner” problem of the neuroscientist but that we are assuming that the revealed preference is about happiness, not something more important to the individual or society. I’m not sure that even egoistic actors always maximize happiness as defined by what tickles whatever part in the brain for happiness.
Likewise, how much happiness would be derived from the choice itself to be pursue a choice that makes us happy/unhappy? I guess your neuroscientist would have already solved that though….
Interesting idea though! it also makes me questions my previous enthusiasm for some nudges