DRU: Context, Experience, and Market Anomalies: Behavioral and Neural Evidence

University Of Chicago, Chicago IL

Investigators

Abstract

Neoclassical economic theory underlies almost all modern economic policy analyses. Nevertheless, several important deviations from standard assumptions of the theory have been robustly documented in laboratory experiments on economic decision-making. Two such important behavioral deviations are the "endowment effect" and the prevalent display of altruism/social preferences. A multidisciplinary team of researchers from economics, psychology, and neurology will examine the sources of these experimental findings. In this research, the economic decision-making experiments - spanning both laboratory and field treatments - used to detect these deviations will be complemented by neuroimaging techniques to provide insights into the neural mechanisms underlying the behavioral responses. An important hypothesis that will be tested in the context of the endowment effect is whether the effect survives in competitive trading settings. To test this hypothesis, a subject pool with varying degrees of experience as traders in real-world markets will be utilized. Neuroimaging techniques will be used to examine the neural responses of experienced versus inexperienced subjects. The experimental subjects will also be tracked over the course of several years to examine the persistence of behavioral patterns, and whether market experience attained during the survey period is reflected in neural activation patterns. In order to isolate the sources of social preferences/altruism displayed in laboratory games, an experimental design with variations in giving contexts will be used to test among competing explanations for the observed behavioral responses. Neuroimaging will play a crucial role in discriminating between alternative hypotheses and predicting behavior in novel situations. To collect neural measurements with high spatial and temporal accuracy, both fMRI and event-related electroencephalography (ER-EEG or ERP) techniques will be utilized, allowing a more complete understanding of the gains achieved from combining these two measurement modalities. The research is expected to have broader impact through several channels. The economic decision-making contexts studied in the research are ubiquitous in daily life. Assessing the effects of market experience and context variations on decision-making are necessary steps to extend the predictive domain of behavioral theories beyond the laboratory. The multidisciplinary nature of the project is expected to promote the flow of knowledge across the economic, psychology, and neurology/neuroscience disciplines, and will produce trainees (at the post-doc, graduate and undergraduate levels) who will further the communication between these fields.