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Posts Tagged ‘Neuroeconomics’

vix

In 1802, in a letter to then Secretary of the Treasury, Albert Gallatin, Thomas Jefferson warned that, “If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” (source)  Although the US now does have a central government bank, Jefferson’s warning still chillingly echoes through our current crisis as we teeter on this very brink.

The reasons why the US financial system lies stricken now (not to mention many times before) are complex for sure, but for a neuroscience & genetics buff like myself, its fun to consider the underlying mechanisms of human biology and behavior within a macroeconomic framework.  What role for the brain and human nature? How does our understanding of human social and emotional behavior reconcile with the premise of so-called “rational” behavior of investors and consumers in a marketplace? Can we regulate and design a debacle-proof economic system that accounts for human social and emotional influences on otherwise rational behavior? Luckily, if you are interested in these questions, you need only to pick up a copy of “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism” by George Akerlof and Robert Shiller, who cover this very topic in great detail and provide a broad framework for neuropsychological research to inform macroeconomic policy.  A lofty and distant goal indeed, but perhaps the only way forward from such spectacular wreckage of the current system.

One such aspect of so-called “animal  spirits” could be, for example – fear – which has been blamed many times for financial panics and is covered in great measure by Akerlof and Shiller.  During the depths of the great depression, FDR famously tried to shake people loose from their animal spirits by suggesting “Only Thing We Have to Fear Is Fear Itself” (listen to the audio).   As another example, consider the chart at the top of the post – a 5yr trace of the VIX an index of volatility in the price of stock options over time.  In a bull or a bear market, when there are clear economic signals that stock prices should rise or fall, the VIX is rather low – since people feel relatively certain about the overall direction of the market.  Note however, what happened in the fall of 2008, when the heady days of the housing boom ended and our current crisis began – the VIX rockets toward 100% volatility – indicating rather dramatic swings in future earnings estimates and hence, tremendous uncertainty about the future direction of the market.  Indeed, for high flying investors (who may reside in tall buildings with windows that open) the VIX is sometimes referred to as the fear index.

What – in terms of brain mechanisms – might underlie such fear – which seems to stem from the uncertainty of whether things will get better or worse?  What do we know about how humans react to uncertainty and how humans process uncertainty?  What brain systems and mechanisms are at play here? One recent report that uses genetic variation as a tool to peer into such brain mechanisms suggests that dopamine signaling modulates different brain areas and our propensity to respond in conditions of low and high uncertainty.

In their article, “Prefrontal and striatal dopaminergic genes predict individual differences in exploration and exploitation“, [doi:10.1038/nn.2342] Michael Frank and colleagues examine individual differences in a so-called exploration/exploitation dilemma.  In their ‘‘temporal utility integration task’’, individuals could maximize their rewards by pressing “stop” on a rotating dial which can offer greater rewards when individuals press faster, or when individuals learn to withold and wait longer, and, in a third condition when rewards are uncertain.  The authors liken the paradigm to a common life dilemma when there are clear rewards to exploiting something you know well (like the restaurant around the corner), but, however, there may be more rewards obtained by exploring the unknown (restaurants on the other side of town).  In the case of the VIX and its massive rise on the eve of our nations financial calamity, investors were forced to switch from an exploitation strategy (buy housing-related securities!!!) to an exploration strategy (oh shit, what to do?!!).

The neurobiological model hypothesized by Frank and colleagues predicts that the striatum will be important for exploitation strategies and find supporting data in gene associations with the striatally-enriched DARPP-32 gene (a marker for dopamine D1-dependent signalling) and DRD2 for the propensity to respond faster and slower, respectively, in the exploitative conditions (rs907094 & rs1800496).  For the exploratory conditions, the team found an association with the COMT gene which is well-known to modulate neural function in the prefrontal cortex (rs4680). Thus, in my (admittedly loose) analogy, I can imagine investors relying on their striata during the housing boom years and then having to rely more on their prefrontal cortices suddenly in the fall of 2008 when it was no longer clear how to maximize investment rewards.  Egregious bailouts were not yet an option!

Click here and here to read more breakthrough neuroeconomics & genetic research from Michael Frank and colleagues.  Here and here for more on Shiller and Keynes.

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Mike Defensor at a political rally in Cebu City
Image via Wikipedia

Shopaholics and political activists might want to take a look at Jonathan Roiser et al.‘s paper, “A Genetically Mediated Bias in Decision Making Driven by Failure of Amygdala Control” [doi:] as an early example of the nexus of “behavioral-neuro-economic-genetics” or “neuro-genetic-marketing” or “neuro-eco-geno” as it might (not) be called one day.  In any case, it has long been known that humans are susceptible to the “framing effect” – that is – we favor certainty over risk when we stand to gain ($10 now vs. 20% chance of winning $50) and rather favor risk over certainty when we stand to lose (20% chance of losing $50 vs. lose $10 now).  Political and retailing experts have long-since exploited these tendencies in voters/consumers (unemployment is on the rise – lets take a chance on this new policy! or this yogurt is 99% fat free! vs. its got 1% of unhealthy fat).

Roiser and team evaluate the extent to which individuals who are homozygous at the 5HTT-LPR “short” allele differ from “long(a)” allele homozygotes when confronted with win/lose, sure-thing/gamble contingencies.  Interestingly, while both groups demonstrated the tendency to avoid risk when they stood to gain money and preferred to gamble when they stood to lose money, the group that was homozygous at the 5HTT-LPR was almost twice as likely to do so – thus identifying a group that is significantly more susceptible to the framing of choices (they otherwise did not differ from the “long(a)” group in control trials or in other aspects of overall performance).

Analysis of brain activity shows a now well-replicated association of “short”-allele genotypes with increased amygdala activity  – in this case the association was observed when participants were confronted with the choice of “pick the sure thing” vs. “gamble” in both the gain and loss conditions.  Also, the group reports on the functional coupling of the amygdala and cingulate cortex – an effect which has been previously associated with variation at the 5HTT-LPR – and shows that individuals who did not show functional coupling between these brain regions were more susceptible to the framing effect.  Hence, the “short” allele group may have a harder time bringing cortical control to their immediate emotional responses.

What might these findings tell us about decision making in humans?  Well, as pointed out by the authors, the findings in the amygdala and cingulate cortex suggest that the emotional systems of the participants are engaged as well as genetic factors, such as 5HTT that are known to regulate the early development and responsivity of these emotional systems.

Most of us already know that we don’t make decisions only using our minds – and doncha know – retailers and political pollsters are already experts at gaming our innate propensities.  Some, it seems, perhaps more than others.

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2nd third of 19th centuryImage via Wikipedia

You see a masterpiece while I see splatters of paint on a canvas. Why – in neural terms – do we see the same painting and feel so subjectively different ?

Understanding the neural crosstalk between visual inputs (the raw neural activity generated in the retina) and our complex internal states (needs, desires, fears etc.) of an organism is a research problem that is long on philosophy but rather difficult to address experimentally. Professors P. Read Montague and Brooks King-Casas provide a conceptual overview to how such neural crosstalk might be collected, analyzed and understood in terms of basic computational processes that underlie human decision making. In their article, “Efficient statistics, common currencies and the problem of reward-harvesting“, [doi: 10.1016/j.tics.2007.10.002] they provide an historical review of some of the major conceptual frameworks and give examples of how basic research in the area of reinforcement learning (dopamine serves as a reinforcement signal since it is released in the ventral striatum when you get more than you were expecting) might serve as a core cellular mechanism underlying the inter-linking of incoming sensory information with internal states.  Dr. Montague’s book on decision making is also a fun experience & great introduction to the burgeoning area of neuroeconomics.

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Red = oxygenated  Blue = d...Image via Wikipedia Brain images with red and yellow splotches of activity are now ubiquitous in the psychology literature and well on their way, via neuromarketing, to bamboozling consumers everywhere (eg. this splotch shows that 2/3 people really do prefer Pepsi !). When inappropriately used, fMRI methods can devolve quickly into a high-tech form of phrenology with concomitant hucksters (not unlike recent reports of consumer fraud in genetic testing) and, despite its ubiquity and potentcy as a research tool, the molecular basis for the fMRI signal has remained somewhat mysterious. Generally, when neurons fire, local blood-flow increases and the paramagnetic form of deoxyhemoglobin can be distinguished from the nonmagnetic oxygenated form using the electromagnetic scannner. Hence, splotches that indicate more blood flow (or Brain Oxygen Level Dependent – BOLD reponse) can be a proxy for neural activity. The connection between neuronal firing and blood flow, however, is not necessarily simple nor easily ignored. Amazingly, a recent report from Takano and colleagues, “Astrocyte-mediated control of cerebral blood flow(DOI) shows that a single master regulatory gene, cyclooxygenase-1 (COX-1) is sufficient to regulate blood flow in response to neural activity. Takano and a team led by Maiken Nedergaard show that astrocytes have their hands wrapped around neural synsapses and their feet wrapped around capillaries. When the astrocytes sense synaptic firing (glutamate spillover) they signal to the capillaries and contractile pericyte cells to relax and vasodilate. Using a series of pharmacologic blockers, the team tested a number of candidate regulatory pathways and found that only COX-1 blockade affected vasodilation in response to neural activity. The work of this research team greatly improves the understanding of the fMRI method and provides a well constrained framework through which to understand fMRI data and, moreover, the interplay between brain imaging and genetic data. Hopefully the basic research will stay one step ahead of the hucksters.

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