Buy? Sell? How do you make up your mind?
November 16, 2004
Jessica Yu / Stanford Daily



Consider a familiar scene: You walk into the supermarket and head for the beverage aisle in hopes of quenching your thirst. In front of you lies a myriad of choices. Coke and Pepsi sit before you -- nearly identical colas.

In your mind, however, an area of your brain has preferentially chosen Coke -- and your choice was not wholly associated with taste. Brand loyalty, it turns out, may be etched into your brain.

How do researchers look at brand loyalty, purchasing decisions and risk taking in business? Using the rapidly emerging field of neuroeconomics.

A fairly new area of study, neuroeconomics combines economics, neuroscience and psychology to examine how the brain makes economic decisions and acquires personal preferences. The fusion of these two fields -- neuroscience and economics -- has implications that affect all types of people, from the everyday consumer to the corporate head to the political candidate.

The common individual might learn that his or her shopping habits, movie reactions or investment decisions are a matter of brand loyalty. The CEO of a company may gain powerful insight into the way advertising impresses or turns off the public. A political campaign could discover the secrets to garnering extra votes on election day.

A neuroeconomics course is offered for the first time at Stanford by the Psychology and Economics Departments, introducing undergraduate and graduate students to this new field. Taught by Economics Asst. Prof. Antonio Rangel and Psychology Assoc. Prof. Brian Knutson, the course is a research-based seminar and consists of 30 students, half undergraduates and half graduates. Students have experience and expertise in the areas of biology, economics, neuroscience, psychology and symbolic systems, making for interdisciplinary class discussions.

According to Rangel, the class examines a broad range of topics. Students discuss how people evaluate goods and keep in mind things that might not be in front of them when making decisions. They study risk-taking behavior, decision-making processes and addiction. The course attempts to apply the researchers' understanding of neuroscience concepts in order to make better economic and social policy decisions.

Cliff Baum, a senior who once declared himself an economics major but has since switched over to psychology, is taking the course.

"It's an interesting topic," Baum said. "It integrates everything I've studied in my track at Stanford."

Eva Patil, a senior majoring in psychology with an emphasis in neuroscience, agreed.

"I needed a class to fulfill my neuroscience track, and neuroeconomics seemed very different from the other classes," Patil said. "It was intriguing."

Although Patil has never taken an economics course on the college level, she finds the class consists of a good mix of economics in psychology.

"It's interesting, much more applicable than I thought it would be," she said. "A lot of what we study is policy-oriented. [We deal with the topic of] addiction -- do I use the drug again? How should the government deal with addiction and drugs?"

Baum said he thought the development of the field just made common sense.

"How the brain makes decisions is implicit in the realm of economics," he said.

According to Rangel, the excellent laboratory facilities at Stanford make it possible to engage in the research associated with this emerging field. Like biology, chemistry and physics, neuroeconomics requires experimentation. Studies of neuroeconomics often use state-of-the-art technology, including a machine that can map activity in the brain during decision making or thought processing using functional magnetic resonance imaging -- better known as fMRI.

On the other hand, there are other experiments that do not require the use of such high technology. To analyze the extent to which irrelevant emotional shocks move economic decisions, neuroscientists have subjects trade in stock simulations while music is played to control emotions. The belief is that trading may be affected as music affects people's emotions.

Stanford is not the only university introducing neuroeconomics to its students. The California Institute of Technology and New York University have also begun to study this area. Papers about the topic are emerging in a series of scientific and economic journals, as scientists and economists are delving eagerly into the many facets of this new field.

Yet the implications of the studies will take many years to process. After all, what do you do once you know the area of the brain that is activated when you choose a certain brand of toothpaste?

As Rangel stated: "The ratio of what we know to what we want to know is so small."