overview of neuroeconomics
TRANSCRIPT
An Overview of Neuroeconomics
Dante PirouzDoctoral Candidate ResearcherPaul Merage School of Business
February 7, 2008
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Some Neuroecon Humor…
Consumer Behavior:- Brand identification- Brand recognition- Emotional response- Memory
What is Neuroeconomics?• Studies how the brain interacts with the
environment to produce economic or consumer behavior
• Integrates marketing, economics, psychology, neuroscience, and cognitive science – Influence of advertising and brands– Decision making– Influence of emotion, biases, etc.– Influence of other people– Segments – elderly, children, males, females, etc. – Addictive consumption
Cognitive Neuroscience• Seeks to understand the neural
mechanisms underlying higher brain function
• Language, learning, memory, attention, emotion, decision making, perception
Why Combine Consumer Behavior and Neuroscience?
• Neoclassical economists ask “Given rational people, how do models behave?”
• Psychologists ask “Why do people behave the way they do?”
• Looking into the “black box”– At the neuronal and biochemical level – To understand what makes people happy, risk
seeking or averse, trusting or trustworthy and what drives preference and choice
Neural Response to Advertising• Taste test
– Coke vs. Pepsi– Baylor College of Medicine 2004
• Super Bowl ads– Ranking by fMRI brain scans– UCLA 2006– Winner: ‘I’m Going to Disney World’– Loser: Budweiser’s ‘Secret Fridge’
Occipital Lobe
Frontal Lobe
Parietal Lobe
Temporal Lobe
Main Brain Regions
Pons
Spinal Cord
Cerebellum
Amygdala
Thalamus
Hypothalamus
Hippocampal
FormationCorpusCallosu
m
Cingulate Gyrus
Striatum
Limbic System
Neuroscience Methods– Studying humans
• Imaging of brain activity• Measuring hormone levels, pupil dilation,
galvanic skin response, heart rate variability• Lesion studies• Stimulation
– Transcranial magnetic stimulation (TMS)
– Studying animals• Single and multiunit recordings
Phineas Gage
Brain Imaging TechniquesMethodology What is imaged? How?
Electroencephalography (EEG)
Changes in electrical brain current
Electrodes placed on scalp measure electrical brain waves
Computed (Axial) Tomography Scan (CT or CAT)
X-ray images of the brain
Multiple images (tomograms) are taken by rotating X-ray tubes. Does not image function
Positron Emission Tomography (PET)
Emissions from radioactive chemicals in the blood
Radioactive isotopes injected into the blood are detected like X-rays
Magnetoencephalography (MEG)
Changes in electrical brain current
Similar to EEG but magnetic brain waves are measured instead of electrical waves
Functional Magnetic Resonance Imaging (fMRI)
Blood flow; oxyhemoglobin to deoxyhemoglobin ratio
Relies on magnetic properties of blood. Shows brain function spatially and temporally
EEG
CT/CAT
PET
MEG
Functional Magnetic Resonance Imaging (fMRI)
• Uses strong magnetic fields to create images of biological tissue– Measures hemodynamic signals
related to neural activity• Blood Oxygenation Level
Dependent (BOLD) contrast• MR signal of blood is dependent
on level of oxygenation• Changes in deoxyhemoglobin
• Blood flow in the brain implies function– Studies have shown regional
brain activity when exposed to cues (Huettel et al. 2004)Source: UC Irvine Center for Functional Onco-Imaging
Why is fMRI so exciting?
• Non-invasive• Better temporal
resolution• Good and
improving spatial resolution
• Can be used in conjunction with other methods (Savoy 2005) Pirouz & Park, 2005, Harvard Medical
School/Massachusetts General Hospital Fellowship Program in fMRI
Caveats of fMRI• Interpreting the results
– Direct vs. indirect measure of brain activity– Inferring behavior
• Experimental design• Statistical methods
– Learning the procedure and statistical methods• Cost• Comfort/safety/cooperation of the subject
The Dark Side of Product Attachment: The Neural Response to Addictive Product Cues
Dante Pirouz, Doctoral StudentDr. Steve Cramer, Assistant Professor, Neuroanatomy/Neuroscience
Connie Pechmann, Professor, MarketingPaul Rodriguez, Research Specialist, Cognitive Science
University of California, Irvine
Funded by a clinical research grant from UCI’s General Clinical Research Center (GCRC)
Background• Cue Reactivity Theory
(Carter & Tiffany 1999)– Substance users exposed
to environmental cues (visual, tactile, olfactory, etc.)
– Role of cues in addiction• How this is related to
marketing:– Role marketing/ advertising
plays in influencing behavior
– Especially for vulnerable populations, e.g. adolescents
Method
• Event-Related fMRI (3T)– 6 subjects– 14 – 25 years old– 2 groups: smokers and non-smokers
• Stimuli– Cigarette ads– Non-cigarette ads
• Matched to cig ads– Neutral images
Cigarette Ads
• Ads from 1998 - 2000• 40 images
– Marlboro, Newport, Camel, Winston, Salem, Virginia Slims, Lucky Strike
Source: Pollay Tobacco Ad Collection
Neutral Ads
• Ads from 1999 - 2005• Matched in color,
theme, etc.• 40 images
Neutral Images
• International Affective Picture System (Lang 1997)
• 40 images
Neural Predictors of Purchases
• Knutson, Rick, Wimmer, Prelec and Loewenstein, Neuron, 2007– Investigates how people process preference and
price when buying– Decision to purchase
• Tradeoff between pleasure of acquisition and pain of paying
• Positive and negative anticipatory affect– Determine the distinct neural components of the
purchase decision process in individuals
Experimental Design
• Event-related fMRI• SHOP = Save Holdings Or Purchase task
– 26 adults• Endowed $20 to spend on range of
products– 80 products; $8-$80– Subjects purchased about 30% of products
Results• Nucleus accumbens (NAcc)
– Anticipation of financial gains– Correlated with product preference– Evaluating rewards and craving
• Insula– Implicated in anticipation of loss (Paulus & Stein
2006)– Correlated with excessive prices
• Mesial prefrontal cortex (MPFC)– Implicated with integrating gains and losses– Correlated with reduced prices
Results
• Study shows some evidence of regions that can predict purchasing– Preference elicits activation in NAcc prior to
purchase decision– Excessive prices elicits insula activation and
MPFC deactivation • Preference as potential gain and price as potential
cost
Investment Behavior and the Negative Side of Emotion
• Shiv, Loewenstein, Bechara, Damasio, and Damasio, Psychological Science, 2005– Do emotions cause poor investment
decisions?• Compared subjects with stable focal brain
lesions disabling emotional regions with control patients with no impairment
• 19 normal subjects, 15 lesion patients with damage in emotional regions, 7 lesion controls with damage in non-emotion related regions
Investment Game
• Participants told they would making several rounds of investment decisions– Endowed with $20 play money – Choose between 2 options: invest or don’t
invest• If invest, give $1 to researcher; if not, keep $1
– Researcher will flip coin • If heads, then lose $1• If tails, then get $2.50• Rational choice: Always invest!!
– EV of investing is higher than not investing
Results• Lesion patients with
emotional neural damage make more advantageous investment decisions than normal subjects– Target patients
invested consistently across rounds; controls/normal subjects increasingly declined to invest
The Neurobiology of Trust• Zak, Kurzban & Matzner, Annals of New
York Academy of Science, 2004– Do hormones, such as oxytocin,
regulate trust behavior?• Oxytocin
– Neuropeptide involved in social recognition and bonding
• Trust game– Subjects arranged into DM1-DM2 dyads– DM1 asked to split $10– Decision will determine how much they earn
• 28 mL of blood drawn after each decision• 2 conditions: Intention and random draw
Trust Game
• At node A, the investor has the option of either path• Moving left ends the game with the outcomes: $0 to the
Trustee and $10 to the Investor• Moving right allows trustee to move (after investment is
increased)• Trustee can choose either path at node B• Once trustee moves the game ends and payoffs are
distributed (McCabe 2003a)
A: Investor
B: Trustee
$0$10
$15$15
$0$30
Results
• Oxytocin (OT) levels were higher (2x) with an intentional trust signal from DM1s in DM2s than in random draw condition
• Also, behavior changed with an intentional trust signal– DM2s returned 53% of the money they received vs. 18% in
the random draw condition
$20/bottle $90/bottle
Marketing Actions Can Modulate Neural Representations of Experienced
Pleasantness• Plassman, O’Doherty, Shiv and Rangel,
PNAC, 2008– Do the changes in the price of a product affect
neural representations of experienced pleasantness = price/quality effect
– Subjects were scanned while taste testing red wines that they believed were different and sold at different prices
Results
• Increasing the price of a wine increased subjective reports of flavor pleasantness
• Increased BOLD activity in the medial orbitofrontal cortex, believed to encode for experienced pleasantness
• Study shows that marketing actions modulate neural correlates of experienced pleasantness
Criticisms• Theory?• Preference for existing models• Press coverage• Consumer concern• Commercial ventures
Recommended Reading• “Neuroeconomics: How Neuroscience Can Inform
Economics” – Colin F. Camerer, George Loewenstein, and Drazen
Prelec (2005) Journal of Economic Literature 43(1): 9.• “ What Can Advertisers Learn from
Neuroscience?”– Hilke Plassmann, Tim Ambler, Sven Braeutigam, and
Peter Kenning (2007) International Journal of Advertising 26(2): 151-75.
• The Secret Life of the Brain, PBS
Thanks!
http://www.merage.uci.edu/~dpirouz04/