Three studies on the neuroeconomics of decision-making when payoffs are real and negative

Abstract

Purpose – We summarize three previous neuroeconomic studies with two features that distinguish them from most others in experimental economics: (1) the use of physical pain to induce incentives and (2) acquisition of data on brain activation levels. By correlating behavior when payoffs are painful with brain activation, we are able to test for the neurobiological relevance of important phenomena previously observed in experimental studies that are at odds with classical economic theories of decision-making. These specific phenomena are (a) negative discounting of future payoffs; (b) nonlinear probability weighting; (c) the experience of regret and rejoice when making a decision under risk.

Methodology/approach – The expectation of pain is created through the use of mild electric shocks to the top of the foot. Pain confers disutility, so decisions are made in the domain of losses relative to the status quo. Simultaneous with these decisions, brain activation data is acquired through functional magnetic resonance imaging (fMRI).

Findings – We find evidence for negative time discounting of electric shocks. Participants who exhibited the most extreme forms of this discounting were distinguished by early and robust activation of a subset of the cortical pain matrix. We also find evidence for probability weighting in the domain of electric shocks, which is manifest at the neural level. We find evidence both behaviorally and neurally for regret and rejoice functions for painful outcomes.

Originality/value of chapter – Previous experimental economic studies in the domain of losses have typically used monetary rewards. Here, we report behavioral effects and neural correlates using pain.

Citation

Berns, G.S., Monica Capra, C., Moore, S. and Noussair, C. (2008), "Three studies on the neuroeconomics of decision-making when payoffs are real and negative", Houser, D. and McCabe, K. (Ed.) Neuroeconomics (Advances in Health Economics and Health Services Research, Vol. 20), Emerald Group Publishing Limited, Leeds, pp. 1-29. https://doi.org/10.1016/S0731-2199(08)20001-4