Thursday, August 09, 2007

Apparantly there is a field called neuroeconomics?

I just read an article called "The psychology of sub-prime mortgages." It's about a research study using fMRI (which, incidentally, is what I had done two weeks ago) that looked at areas of the brain while subjects were asked to contemplate and choose between receiving a small amazon.com gift certificate immediately or a larger gift certificate in four weeks. They found that different areas of the brain were activated depending on the decision. For the immediate reward, the midbrain dopamine system responsible for emotional thought was activated, while the distant reward activated the prefrontal cortex responsible for rational thought. Apparently there is an evolutionary advantage for the midbrain to "win" when making these types of decisions. The article combines this with the idea of "temporal discounting," where we tend to overvalue things that are very near in time and undervalue things that are further away in time, to postulate that there are specific neural patterns that "cause" people to make decisions like taking on a 2/28 mortgage, where the rate is fixed very low for the first two years and then is variably higher for the rest of the mortgage term - because the immediate reward (house) is overvalued and the later risk (very high payments) is undervalued. Pretty interesting. But I'd still choose the bigger gift certificate later, and pass on the 2/28 mortgage...I guess I wouldn't have made a very good cavewoman. Besides the fact that if a saber tooth tiger was creeping up on me I probably wouldn't see it until it was 6 inches away.

2 comments:

ted said...

you read this in your spare time? Someone get this girl an Amaretto, STAT!

Courtney said...

Aw, you remembered :-) Seriously though, I thought the article was neat! I know, I'm a nerd.