Imagine a collaborative research project of a neuroscientist and an economist – sounds odd? At first glance, the pairing of biotech research and applied economy might appear somewhat strange. However, the two seemingly so diverse fields are finding more and more common ground.
Professionals in business and economy have been displaying an increased interest in how the human brain works and how this knowledge can contribute to business. Be it the willingness to take financial risks, how and why consumers pay attention to things and prefer certain products or services over another or the application of neuroscience in management research, either of these concerns can be investigated in a more powerful way when traditional methods are combined with biometric research tools.
“Economics is at the start of a revolution that is traceable to an unexpected source: medical schools and their research facilities. Neuroscience – the science of how the brain, that physical organ inside one’s head, really works – is beginning to change the way we think about how people make decisions. These findings will inevitably change the way we think about how economies function. In short, we are at the dawn of “neuroeconomics.” – Robert Schiller, world-renowned economist at Yale.
A few behavioral economists, so-called neuroeconomists, use cutting-edge brain scanning tools such as functional magnetic resonance imaging (fMRI) or electroencephalography (EEG) to examine motivational patterns. Some prefer gaining even deeper insights by combining traditional tools such as surveys and behavioral observations with eye tracking to study gaze and visual attention. Also, more and more economists use facial expression analysis tools in the context of social test scenarios to observe overt emotional responses.
3 core fields in neuroeconomics where biometric tools are applied are:
1. Decision making:
Every business is a collaborative effort of people who make decisions. Understanding the key elements of how company leaders decide together with what optimizes the decision making process is a critical factor for company performance. Any kind of decision making usually happens under some conditions of risk, the uncertainty of outcomes with a known probability. The human brain seems to have multiple areas that deal with uncertain situations which can be measured by using brain-scanning tools such as EEG or fMRI, ideally in conjunction with measures of autonomous arousal such as GSR or ECG sensors.
2. Social decision making:
In addition to individual decision making, it is also important to study how decisions are made in collaboration with others. Psycho-physiological research (such as the studies of Jane Elliott) has shown that social and cultural elements such as the roles of punishment, cooperation, or altruism drive decisions of groups. It is interesting to see how individuals decide when they depend on others’ decisions, or their own decision impacts others. Social decision making is crucial for any company/business since the majority of decisions is made in a team environment, where people affect each other. Getting a deeper understanding of what ultimately leads to the best social decisions can therefore increase business performance.
3. Risk and loss aversion:
A further interesting area is the aversion of potential losses and risks. Research has identified factors which cause us to perceive the cost of losing a certain amount of money as higher as the value of gaining the same amount (so-called “Endowment Effect”). Biometric research helps understand biological signals associated with thought patterns and perceptual biases towards negative/positive estimations. Identifying psycho-physiological factors underlying risk and loss aversion and understanding their impact for behavior can be a game changer for a company, e.g., to create an environment where even under stress, limited resources and impending threats the right decisions are made!