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Neuroeconomics of Games and Decisions* Colin Camerer, Caltech   . Neuroeconomics: Grounding micro-economics in details of neural activity Part of behavioral economics (using psychology to inform theories of rationality limits) Part of experimental economics (new techniques)

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Neuroeconomics of games and decisions colin camerer caltech
Neuroeconomics of Games and Decisions*Colin Camerer, Caltech  

  • Neuroeconomics:

    • Grounding micro-economics in details of neural activity

    • Part of behavioral economics (using psychology to inform theories of rationality limits)

    • Part of experimental economics (new techniques)

    • Part of neuroscience (higher order cognition)

      *”Neuroeconomics” Camerer, Loewenstein, Prelec J EconLit (85 pp), Scan J Econ (25 pp), “Why economics needs brains”

Nemmers Prize talk May 7, 2005


Collaborators
Collaborators

  • Caltech: Meghana Bhatt, Ming Hsu, Ralph Adolphs, Cedric Anen, Steve Quartz

  • Iowa: Dan Tranel

  • Baylor: Brooks King-Casas, Damon Tomlin, Read Montague

Nemmers Prize talk May 7, 2005


Three directions in neuroeconomics
Three directions in neuroeconomics

  • I. Support for rational-choice models

    • “Belief” neurons

    • Expected-value neurons

    • “Monkey shopping” satisfies GARP

  • II: Support for behavioral alternatives

    • Loss-aversion in monkey shopping

    • Learning in trust games

    • Ambiguity vs. risk (Knight, Ellsberg)

  • III: New concepts

    • Equilibrium as a “state of mind”

    • Neural correlates of “strategic IQ”

    • Biological basis of demand

Nemmers Prize talk May 7, 2005



Cingulate yellow orbitofrontal pink amygdala orange somatosensory green insula purple
Cingulate (yellow), orbitofrontal (pink), amygdala (orange), somatosensory (green), insula (purple)

Nemmers Prize talk May 7, 2005


Important facts about the brain
Important facts about the brain

  • Functional “modularity”…

    • …but “plastic” esp. in childhood

  • Behavior depends on circuits

  • Human brain is primate brain + neocortex

    • Language, social organization (institutions)

    • Infants, fraternity parties show similarity

  • Many biological functions are automated; conscious attention is scarce (flicker paradigm)

Nemmers Prize talk May 7, 2005


I: Rational choice in the brainMidbrain neurons anticipate reward (L), encode value function V(.) learning (R) (Schultz, Dayan, Montague Sci 97)

Nemmers Prize talk May 7, 2005


Neuron firing rates y axis encode expected value x axis glimcher
Neuron firing rates (y axis) encode expected value (x-axis) (Glimcher)

Nemmers Prize talk May 7, 2005


Monkeys play mixed equilibrium as humans do dorris glimcher neuron 04
Monkeys play mixed equilibrium (Glimcher)as humans do (Dorris-Glimcher Neuron 04)

Nemmers Prize talk May 7, 2005


Capuchin monkeys respond to prices keith chen et al 05
Capuchin monkeys respond to prices (Glimcher)(Keith Chen et al 05)

Nemmers Prize talk May 7, 2005


Ii behavioral economics in the brain
II: Behavioral economics in the brain (Glimcher)

  • Monkey choices are sensitive to reference points

  • Reference point (initial food reward endowment)

    • 1 21 2

      Outcome 1 1 (1,2) (1,2)

      Choice % 79% 21% 71% 29%

Nemmers Prize talk May 7, 2005


Design goal link stimuli with unobserved parametric processes variables with circuitry
Design goal: Link (Glimcher)stimuli with unobserved parametric processes/variables with circuitry

0-step thinking

1-step thinking

Equilibrium C=br(B)

w(red)-P(red)

Nemmers Prize talk May 7, 2005


Overview of fmri
Overview of fMRI (Glimcher)

Nemmers Prize talk May 7, 2005


Data transformations (Glimcher)

Statistical parametric map (SPM)

Design matrix

Image time-series

Kernel

General linear model

Realignment

Smoothing

Statistical

inference

Normalisation

p <0.05

Template

Parameter estimates

Nemmers Prize talk May 7, 2005


Ambiguity aversion with ming hsu et al
Ambiguity Aversion (with Ming Hsu et al) (Glimcher)

  • This material is in review and cannot be publicly circulated at this time.

Nemmers Prize talk May 7, 2005


Iii new ideas
III: New ideas (Glimcher)

  • Limited planning in bargaining

    limited steps of thinking

  • Equilibrium as a “state of mind”

  • Biological bases of demand

Nemmers Prize talk May 7, 2005


Rubinstein stahl alternating offer shrinking pie bargaining
Rubinstein-Stahl alternating offer (Glimcher)shrinking-pie bargaining

  • 1 offers division of $5 ------------ accept

    2 offers division of 2.50 ----------- accept

    1 offers division of 1.25 ------------ accept

    (0,0)

Nemmers Prize talk May 7, 2005


Limited planning in bargaining science 03
Limited planning in bargaining (Glimcher)(Science, 03)

Nemmers Prize talk May 7, 2005


Cognitive hierarchy thinking in games camerer ho chong qje 04
Cognitive hierarchy thinking in games (Glimcher)(Camerer, Ho, Chong, QJE 04)

  • Step 0 players choose randomly

  • Step k players have beliefs gk(h)

  • Step k players choose s*i(k)= argmax s Σh gk(h)πi(s,s*(h))

    • One-step-below gk(k-1)=1

      • Nagel (1995), Stahl-Wilson (1995), Costa-gomes-Crawford-Broseta (2001)

    • Nornalized overconfidence gk(h)= gk(h)/Σhk-1gk(h)

      • gk(h)= 0 for h>k

    • Link to hierarchical QRE (Palfrey-Rogers-Camerer, on this computer)

Nemmers Prize talk May 7, 2005


Limited equilibration beauty contest game
Limited equilibration (Glimcher)Beauty contest game

  • N players choose numbers xi in [0,100]

  • Compute target (2/3)*( xi /N)

  • Closest to target wins $20

Nemmers Prize talk May 7, 2005



Neural correlates of iterated belief bhatt camerer geb in press
Neural correlates of iterated belief (Glimcher)(Bhatt-Camerer GEB in press)

  • 8 dominance-solvable games.

  • C, B, 2B in random order for each game

  • Paid for choice (x$.30) or accuracy B, 2B ($15) against live opponent outside the scanner. (Enables measure of scanner on behavior.)

  • N=16 Caltech community students

Nemmers Prize talk May 7, 2005


Example 1 step easy game b dominates a l r payoff separation allows eye tracking
Example: 1-step (easy) game; B dominates A. (Glimcher)L-R payoff separation allows “eye tracking”

Nemmers Prize talk May 7, 2005


Conformity to equilibrium: (Glimcher)There are many nonequilibrium trialsNote: C matches 2B more often than B matches 2B

Nemmers Prize talk May 7, 2005


Equilibrium is a state of mind: (Glimcher)Expected reward theory of mind + (in equilibrium ↓) (↓ out-of-equilibrium)

Nemmers Prize talk May 7, 2005


Subject complaining after an experiment zamir 2000
Subject complaining after an experiment (Glimcher)(Zamir, 2000)

Nemmers Prize talk May 7, 2005


Ultimatum games this is your brain on unfairness sanfey rilling et al sci 13 march 03
Ultimatum games: This is your brain on unfairness (Glimcher)(Sanfey, Rilling et al, Sci 13 March ’03)

Nemmers Prize talk May 7, 2005


Consistent 2 nd order beliefs c 2b vs inconsistent false c 2b

2 (Glimcher)nd-order belief consistency differential activates dorsolateral prefrontal cortex (DLPFC)

DLPFC also seen in ultimatum games after low offers (“intentions matter”)

DLPFC is part of 2nd-order belief circuitry?

Consistent 2nd-order beliefs (c=2b) vs inconsistent (“false”) (c≠2b)

Nemmers Prize talk May 7, 2005


Deactivation in insula and high strategic iq

Strategic IQ (x-axis): How much you earn from choices & beliefs

Correlated (-) with activity in L insula in choice task

 Are overly self-focussed people poor strategic thinkers?

Deactivation in insula and high strategic IQ

Nemmers Prize talk May 7, 2005


Insula and low strategic iq

Strategic IQ (x-axis): How much you earn from choices & beliefs

Correlated (-) with activity in L insula in choice task

 Are overly self-focussed people poor strategic thinkers?

Insula and low strategic IQ

Nemmers Prize talk May 7, 2005


Correlates of higher strategic iq
Correlates of beliefshigher strategic IQ

Nemmers Prize talk May 7, 2005


New ideas biological basis for demand
New ideas: Biological basis for demand beliefs

  • Economics takes demand as given. But…

    • Influence of advertising

    • Familiarity and habit formation (“tight playlist” radio stations)

    • Imitation of movie stars/TV shows

      • “LA Law” boom in law school applications

    • Sense-making drive demand for “closure”  lawsuits

    • Media: “If it bleeds, it leads”, NASCAR races

      • Does the amygdala control the TV remote?

    • Addiction: Is golf or shoe-shopping like heroin?

    • Labor market discrimination (Phelps et al)?

      • Unfamiliar black faces activate white student amygdalae

Nemmers Prize talk May 7, 2005


Conclusions
Conclusions beliefs

  • I: Rational choice processes in the brain

    • Monkey belief neurons, games, shopping

  • II: Behavioral economics in the brain

    • Monkey loss-aversion

    • Ambiguity activates amygdala-OFC, risk striatum

      • Lesion patients with OFC are “rational”…for the wrong reason?

  • III: New ideas from neureconomics

    • Limited strategic thinking equilibrium as a “state of mind”

    • Skill (strategic IQ) correlated + with precuneus, caudate,

      correlated - with insula

    • Biological basis of demand

Nemmers Prize talk May 7, 2005


Activation in cingulate cortex spindle cell density
Activation in cingulate cortex & spindle cell density beliefs

Nemmers Prize talk May 7, 2005


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