Neuroeconomics, also referred to as neuroeconomics, is a fairly new field within economics that is actually a blend between neuroscience, economics, and psychology. Neuroeconomics tries to establish the relationship between investors’ decision making and the physical functioning of the brain.
Researchers in this new field analyze the brain’s activity using MRI scans (looking at the chemical composition and blood flow). Neuroeconomics hopes to learn how the brain makes economic decisions. It is strongly related to behavioral finance.
On this page, we discuss some of the findings within the field of neuronomics. We should note that so far, results from neuronomics have not yet had a big impact on economic theory.
Neuronomics studies examples
Many studies in neuronomics study the impact serotonin and dopamine may have on investors’ behavior. In particular, it could be that these explain some behavior biases exhibited by investors.
- Lower levels of serotonin have been linked to anxiety, irritability, depression, and impulsive behavior. Serotonin may influence loss aversion and increased risk-taking following losses
- Increased levels of dopamine create feelings of euphoria. The anticipation of most kinds of rewards trigger the production of dopamine. Failure may lead to reduced production of dopamine, which may result in a depressed state of mind.
- Another aspect in neuronomics is the anatomy of the brain. One part of the brain, the amygdala, is responsible for causing pleasure, fear, and panic. It may be responsible for fight-or-flight responses among investors (e.g. panic selling).
The above bullet list is only a small part of the growing field of neuroeconomics. The common thread is that they start from other fields of science to try and explain humans’ decision making.
Neuronomics or neuroeconomics analyzes the impact of how the brain works on investors’ behavior. While no major breakthroughs have yet been made, it is an emerging field whose impact may lie in the future.