An economic decision-making model of anticipated surprise with dynamic expectation

TL;DR

This paper introduces a neuroscience-inspired decision-making model based on anticipated surprise and dynamic expectations, explaining economic paradoxes and gambling behaviors by integrating brain signals into economic choices.

Contribution

The model uniquely incorporates neural prediction error signals and dynamic reference points, bridging neuroscience and economic decision theories.

Findings

Explains economic paradoxes and gambling behaviors.

Demonstrates how dynamic expectations influence decision appeal.

Bridges gap between neuroscience and economic theories.

Abstract

When making decisions under risk, people often exhibit behaviors that classical economic theories cannot explain. Newer models that attempt to account for these irrational behaviors often lack neuroscience bases and require the introduction of subjective and problem-specific constructs. Here, we present a decision-making model inspired by the prediction error signals and introspective neuronal replay reported in the brain. In the model, decisions are chosen based on anticipated surprise, defined by a nonlinear average of the differences between individual outcomes and a reference point. The reference point is determined by the expected value of the possible outcomes, which can dynamically change during the mental simulation of decision-making problems involving sequential stages. Our model elucidates the contribution of each stage to the appeal of available options in a decision-making problem. This allows us to explain several economic paradoxes and gambling behaviors. Our work could help bridge the gap between decision-making theories in economics and neurosciences.