Does Neuroeconomics Have a Role in Explaining Choice?

Abstract

The central question that has confronted neuroeconomists is whether understanding how a decision maker chooses will help us explain what he will choose. Is there anything to be gained from neural sources of data? Gul and Pesendorfer (2008) have argued to the negative, that economic models are falsified on choices alone, and Bernheim (2009) notes that a model of the neural decision process is ultimately equivalent to a model which uses only choice data. Instead of this equivalence being a weakness of neuroeconomics, we argue it is its greatest strength. Expanding on Bernheim’s theoretical framework, we demonstrate the role neural data can play in building better behavioural models through this equivalence. We then survey the current neuroeconomic literature and provide three examples of this process at work.

Keywords: Neuroeconomics, Methodology

JEL Classification: B41