News Release

Brain imaging study reveals interplay of thought and emotion in economic decisions

Peer-Reviewed Publication

Princeton University

For many people who follow America's financial markets, it is clear that economic decisions people make are not always rational. A study now offers one neurological explanation: people's choices can depend in part on what region of their brain emerges victorious from a battle between centers of emotional impulse and rational thinking.

In a paper to be reported in the June 13 issue of Science, Princeton psychologists used brain-imaging technology to study people as they made decisions that caused them needlessly to lose money and found that negative emotional states can override logical thinking. The study supports a growing area of research called behavioral economics, which departs from conventional theory by considering psychological factors other than pure logic in individual decision-making.

"It is a very important study," said Princeton psychologist Daniel Kahneman, who won the 2002 Nobel Prize in economics for research blending psychology and economics and who is not an author of the study. "It indicates the tremendous promise of this kind of work for behavioral economics and, ultimately, for economics in general."

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 receive 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.

In their study, the Princeton researchers asked people to play the ultimatum game while the receiver's brain was being scanned by functional magnetic resonance imaging, 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.

During the study, receivers rejected unfair offers about half the time, which is consistent with many published studies, said Alan Sanfey, the lead author of the study. "When we explain the game to people they often ask, 'So why would I ever reject an offer? What's the trick?' And we say, 'There's no trick; if you reject an offer you don't get any money; if you accept the offer, you get it.' And they say 'OK.' And yet when they get in there and receive an unfair offer, oftentimes they reject it. There's an element of feeling a little betrayed."

"Both the field of economics and the field of decision making have, for a long time, resisted talking about emotions," said Sanfey, a postdoctoral researcher. "Now we can show biologically that emotions are not just important in a tangential way, in that making a decision makes you feel a certain way; they are important in a primary way because a sufficiently negative emotion can induce you to make certain decisions that would seem to go against your self interest."

Many previous explanations of the ultimatum game tried to ascribe the decision to reject low offers to a mistaken attempt at logical thought -- for example, an unconscious conviction that rejecting unfair offers would promote better future offers, even though a ground rule is that the players meet only once. The strong evidence of emotional involvement and the ability to quantify the brain's internal conflicts with brain imaging will lead to better theories of behavior and economic models, said Kahneman.

"It's difficult for me to imagine future accounts of behavior in the ultimatum game that won't have conflict built right into the theoretical description."

Other coauthors of the study were postdoc James Rilling, former undergraduate Jessica Aronson and staff scientist Leigh Nystrom.


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