Publications
When Does "Economic Man" Dominate Social Behavior?
Colin Camerer, Ernst Fehr
Science, 6 Jan 2006, Vol 311, pp. 47-52
The canonical model in economics considers people to be rational and self-regarding. However, much evidence challenges this view, raising the question of when "Economic Man" dominates the outcome of social interactions, and when bounded rationality or other-regarding preferences dominate. Here we show that strategic incentives are the key to answering this question. A minority of self-regarding individuals can trigger a "noncooperative" aggegate outcome if their behavior generates incentives for the majority of other-regarding individuals to mimic the minority's behavior. Likewise, a minority of other-regarding individuals can generate a "cooperative" aggregate outcome if their behavior generates inventives for a majority of self-regarding people to behave cooperatively. Similarly, in strategic games, aggregate outcomes can be either far from close or close to Nash equilibrium if players with high degrees of strategic thinking mimic or erase the effects of others who do very little strategic thinking. Recently developed theories of other-regarding preferences and bounded rationality explain these findings and provide better predictions of actual aggregate behavior than does traditional economic theory.
Neural Systems Responding to Degrees of Uncertainty in Human Decision-Making
Ming Hsu, Meghana Bhatt, Ralph Adolphs, Daniel Tranel, Colin Camerer
Science, 2005, vol. 310, pp. 1680-1683
Much is known about how people make decisions under varying levels of probability (risk). Less is known about the neural basis of decision-making when probabilities are uncertain because of missing information (ambiguity). In decision theory, ambiguity about probabilities should not affect choices. Using functional brain imaging, we show that the level of ambiguity in choices correlates positively with activation in the amygdala and orbitofrontal cortex, and negatively with a striatal system. Moreover, striatal activity correlates positively with expected reward. Neurological subjects with orbitofrontal lesions were insensitive to the level of ambiguity and risk in behavioral choices. These data suggest a general neural circuit responding to degrees of uncertainty, contrary to decision theory.
Self-referential thinking and equilibrium as states of mind in games: fMRI evidence
Meghana Bhatt and Colin Camerer
Games and Economic Behavior, 2005, vol. 52, pp. 424-259
Sixteen subjects' brain activity were scanned using fMRI as they made choices, expressed beliefs, and expressed iterated "2nd -order" beliefs (what they think others believe they will do) in eight games. Cingulate cortex and prefrontal areas (active in "theory of mind" and social reasoning) are differentially activated in making choices versus expressing beliefs. Forming self-referential 2nd-order beliefs about what others think you will do seems to be a mixture of processes used to make choices and form beliefs. In equilibrium, there is little difference in neural activity across choice and belief tasks, so there is a purely neural definition of equilibrium as a "state of mind". "Strategic IQ" actual earnings from choices and accurate beliefs-- is negatively correlated with activity in the insula, suggesting poor strategic thinkers are too self-focused, and is positively correlated with ventral striatal activity (suggesting that internal predicted reward is linked to expected money earnings for high IQ subjects).
Getting to Know You: Reputation and Trust in a Two-Person Economic Exchange
Brooks King-Casas, Damin Tomlin, Cedric Anen, Colin F. Camerer, Steven R. Quartz, P. Read Montague
Science, 2005, vol. 308, pp. 78-83
Using a multiround version of an economic exchange (trust game), we report that reciprocity expressed by one player strongly predicts future trust expressed by their partner, a behavioral finding mirrored by neural responses in the dorsal striatum. Here, analyses within and between brains revealed two signals - one encoded by response magnitude, and the other by response timing. Response magnitude correlated with the "intention to trust" on the next play of the game, and the peak of these "intention to trust" responses shifted its time of occurrence by 14 seconds as player reputations developed. This temporal transfer resembles a similar shift of reward prediction errors common to reinforcement learning models, but in the context of a social exchange. These data extend previous model-based functional magnetic resonance imaging studies into the social domain and broaden our view of the spectrum of functions implemented by the dorsal striatum.
Neuroeconomics: How Neuroscience Can Inform Economics
Colin F. Camerer, George Loewenstein, Drazen Prelec
Journal of Economic Literature, 2005, vol. 43, pp. 9-64
A review of relevent neuroscience literature.
Neuroeconomics: Why economics needs brains
Colin F. Camerer, George Loewenstein, Drazen Prelec
Scandinavian Journal of Economics, 2004, vol. 106, no. 3, pp. 555-79
An introduction to neuroeconomics.
Strategizing in the Brain
Colin F. Camerer
Science, 2003, vol. 300, pp. 1673-75
A brief discussion of how neuroscience can contribute to economics, especially behavioral game theory.