Policy consequences of the new neuroeconomic framework

TL;DR

This paper introduces a neuroeconomic framework based on neural decision-making processes, highlighting policy implications for issues like addiction, housing markets, and microfinance by integrating neuroscience insights into economic policy design.

Contribution

It presents a novel neuroeconomic framework that links neural decision processes to policy applications, expanding microeconomic theory with insights from computational neuroscience.

Findings

Precommitment strategies can mitigate sunk cost fallacy.

Neural insights explain housing market fluctuations after disasters.

Contingency management is effective for addiction treatment.

Abstract

Current theories of decision making suggest that the neural circuits in mammalian brains (including humans) computationally combine representations of the past (memory), present (perception), and future (agentic goals) to take actions that achieve the needs of the agent. How information is represented within those neural circuits changes what computations are available to that system which changes how agents interact with their world to take those actions. We argue that the computational neuroscience of decision making provides a new microeconomic framework (neuroeconomics) that offers new opportunities to construct policies that interact with those decision-making systems to improve outcomes. After laying out the computational processes underlying decision making in mammalian brains, we present four applications of this logic with policy consequences: (1) precommitment to avoid falling into the trap of sunk costs, (2) media consequences for changes in housing prices after a disaster, (3) contingency management as a treatment for addiction, and (4) how social interactions underlie the success (and failure) of microfinance institutions.