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Why do we make rash decisions?

PhD Sofya Kulikova, senior research fellow of Scientific training laboratory for interdisciplinary empirical studies of NRU HSE-Perm, told in her interview to Properm.ru how our brain works, why hormone oxytocin makes us more trustful and that we like to drink expensive wine more even if it does not differ from cheap wine. Neuroeconomics studies all that.

- Sofya, to what science is neuroeconomics closer, after all?

-  Neuroeconomics combines the features of three disciplines: economics, psychology and neurobiology. The main part in its development was certainly played by neurobiology. That’s why it is much easier to perceive scientific articles for neurobiologists rather than for psychologists or economists.

- What does neuroeconomics study?

- It tries to explain what neurobiological mechanisms lie in the basis of decision making, not only for economic decisions. But since the branch grew up from economics, very often decisions are studied in this context.

Economists always wanted to understand how people make a decision. ‘Cause it allows to predict the behaviour of partners, competitors and clients. It allows to understand if a product will be sold or not, what should be a reasonable price of this product, how its characteristics must be optimized.

Human behaviour is not always rational and can be described by strict economic formulas. Psychologists look at the behaviour, derive regular patterns and predict the future behaviour, while neurobiologists try to understand what brain structures are responsible for one or another behaviour and decision making.

- If my memory serves me well, a human has three layers of brain.

- Yes, there is a hypothesis suggested by American physiologist Paul McLyn, according to which our brain consists, roughly speaking, from three divisions. The first, the most ancient is a reptile brain. It is responsible for some reflexes and quick behavioural reactions. The second division is a limbic system, mammal brain, responsible for emotions. The third division is neocortex, it goes back to primates and is responsible for rational and sober-minded decision making. Neocortex plays an important role, but it is not always useful to be guided exceptionally by it.

Imagine: a young man comes to you and invites you to dinner. If neocortex made a decision alone, it would begin to analyse everything, weigh up the pros and cons, search variants of cafes, choose the dress. But emotions in this case allow to make a quicker and more correct decision – to agree to dinner. Of course, if you like the one who invites you.

By the way, people who have problems with perception and expression of emotions, face difficulties when making the simplest decisions. It takes them too much time

- That is, for example, a man wants to go to the cinema. The one, whose emotions worked, will go and watch a film he wants. And an unduly rational will start analysing all the variants, thinking what film to watch – this or that…

- …yes, comparing prices for shows, selecting a suitable seat in a row.

- As a result, the film will end by the moment when he makes his choice.

- On the other hand, if we speak about risky decisions, for example, investments, emotions can play a low-down trick. We begin to invest, we win, we lose, emotions run high, and we stop risking because of negative experience. Those who have problems with emotions perception, get upset to a smaller extent and continue to invest and finally they win. We can say that an effective investor must have a lower level of emotionality.

- You said that people not always make rational decisions. How did scientists come to that conclusion?

- There was an experiment. We have a couple of men. One of them is given 100 dollars, and he is entitled to share them in any proportion with the second man. He can keep 99 dollars and give away only one. The second man has a choice – either to agree with such division and to take his part or to refuse. In this case nobody gets anything. From the rational point of view a man must agree for a deal in any case. In reality people did refuse.

- The sense of justice does its part.

- Yes, I carried out a similar experiment among Perm students. It was a little bit different. At first I suggested to imagine oneself as a person who gives money away and write how much he is ready to give away. Then the papers were mixed and randomly distributed among the audience. Everybody had to decide if he is ready to agree on such a sum or not. If a person refused – the couple dropped out of a game, where the money prize was an award.

Mainly students shared in proportion 50/50, 60/40. Sometimes they offered even more than 50%. But there were also those who offered small sums. Naturally, the sense of justice surged up, and others refused. Although even a penny is better than nothing, from the rational point of view.

Interestingly, not only humans, but also animals have the sense of justice. There was an experiment when two capuchins were offered to exchange tokens for food. But one monkey was given a cucumber, while the other was given grapes. After some time the monkey that received a cucumber began to refuse it. It just threw it to the experimenter and required grapes. Thus we cannot say that the sense of justice is purely a human sense.

- What influences on making an irrational decision except the sense of justice?

- Our hormones, for example, the level of oxytocin. It is responsible for establishment of warm relationships of trust between mom and child or in the couple. Oxytocin also plays the part in making trust-based risky decisions.

There is a modified game with money exchange. The first man offers money to the second, the second has them tripled, and he can return the part of it back to the first. But he is not obliged to do so. It turns out that the first player is interested in investing in the second, but there is a risk to be left with nothing. If the level of oxytocin is high, the first player will more probably give the second more money even if he knows nothing about the second player and his intentions.

The researchers also watched how the attitude changes if the player does not give money back. If the level of oxytocin is increased, the offence will be, but it will be small and it almost will not influence on the amount of investments in the future.

- Can oxytocin be increased in blood artificially?

- In the course of the same experiment its level was increased with the help of spray. Theoretically, it can certainly be sprayed. But in real conditions it is technically difficult, besides, an ethical question arises.

- What else factors can influence on decision making?

There are many of them. For example, the price. A well-known experiment: professional wine tasters were offered to taste one and the same wine, but for allegedly different price. The tasters rated the intensity of taste equally, but when they were asked to rate subjectively what they liked more, they chose “expensive” wine. The brain centre that encodes pleasantness, was more activated for “more expensive” wine, that is, people derived pleasure from the price itself.

The brand also plays its role. One more well-known example – with Pepsi and Coca. The participants of the experiment were offered to taste blindly and to choose what they like more. Initially people determined themselves as apparent adherents of one or another drink. But despite this they could not distinguish the drinks and preferred both equally.

- Does serving up of information influence on decision making?

- Certainly! If we serve up information in a positive way, then people will choose guaranteed result rather than risky one. And vice versa.

There was an experiment suggested by Nobel prize winner in economics Daniel Kahneman and his co-author Amos Tversky. Test persons were suggested to imagine that a horrible virus was coming, from which 600 people can die. There were two groups. The first was suggested to choose: either produce medicine A which saves 200 people or medicine B which saves everyone with probability 1/3 and saves nobody with probability 2/3. Instructions for the second group sounded in a different way: if we use medicine A, then 400 men will die, and if we use medicine B, then nobody will die with probability 1/3 and everybody will die with probability 2/3.

The differences in serving up the information lead to different results. Where the information was formulated in a positive way, test persons chose medicine A, that is, guaranteed result. Where the information was served up in a negative way, they chose a risky variant.

Besides, we perceive our losses stronger than our winnings. Potential losses are more significant for us than acquisitions. It can be used in advertisement. It is more effective to say so: “If you don’t buy our product, you will lose thus and so” than: “If you buy, you will get thus and so”.

The same effect can be seen with monkeys. Experimenters offered them apples. But one of experimenters first showed two apples, but gave away one and a half. While the other showed one apple, but also gave away one and a half. Despite the fact that the monkey always received one apple and a half, it will go to that man who offered it one apple. Because with the other experimenter it perceives the unreceived half of an apple as its loss.

- Still, how our brain makes a decision?

- There is no formed theory on this topic, but something is known. At first we receive information from the outside world. We saw a product, we touched it, smelt it, tasted it. Then information about the extent and probability of expected use of this product is encoded in nucleus accumbens. The more is the expected use, the more is the activity in the nucleus. The activity means average frequency of neural impulses.

Losses always come together with use. There is another brain structure for them - amygdaloid complex. It encodes the information about the amount and possibility of negative events coming.

Then frontal cortex compares the variants. If there are more arguments in favour of one variant, we make a decision. But there is also connection with emotional centre. It may put a veto or, on the contrary, push forward some variant.

- Are there situations when our brain has already made a decision for us?

- To some extent we can say “yes”. There were experiments when researchers showed sweets to people, then told the price and suggested to buy. And all this time they watched the reaction in nucleus accumbens. If the activity in it was initially high, there was a strong possibility that a man will make a decision to buy, even before he is told the price and asked to make choice. Do we make a decision or everything is destined? I would leave the question open.