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Tuesday, April 17, 2012

Wired to buy

Dave from Japan sent me an interesting link to a book that helps explain the effects that the actions of buying  and selling on the cerebral cortex, Jonah Lehrer's 2009 book The Decisive Moment.

This research might help us understand the rudiments of our physiologic and psychologic buying impulses. A whole new neuroeconomic frontier.

I followed the link back to the original paper.

Neural Predictors of Purchases
Brian Knutson, Scott Rick, G. Elliott Wimmer, Drazen Prelec,and George Loewenstein
Psychology and Neuroscience, Stanford University, Building 420, Jordan Hall, Stanford, CA 94305, USA, Social and Decision Sciences, Carnegie Mellon University, 208 Porter Hall, Pittsburgh, PA 15213, USA, MIT Sloan School of Management, Massachusetts Institute of Technology, E56-320, Cambridge, MA 02139, USA Correspondence: knutson@psych.stanford.edu
DOI 10.1016/j.neuron.2006.11.010

Microeconomic theory maintains that purchases are driven by a combination of consumer preference and price. Using event related fMRI, we investigated how people weigh these factors to make purchasing decisions. Consistent with neuroimaging evidence suggesting that distinct circuits anticipate gain and loss, product preference activated the nucleus accumbens (NAcc), while excessive prices activated the insula and deactivated the mesial prefrontal cortex (MPFC) prior to the purchase decision. Activity from each of these regions independently predicted immediately subsequent purchases above and beyond self report variables. These findings suggest that activation of distinct neural circuits related to
anticipatory affect precedes and supports consumers’ purchasing decisions.

The decision of whether to purchase a product is the fundamental unit of economic analysis. From the bazaar to the Internet, people typically consider characteristics of available products, determine their cost, and then decide whether or not to purchase. The success of economic theory rests on its ability to characterize this repeated and elementary decision process. Neuroeconomic methods offer the hope of separating and characterizing distinct components of the purchase decision process in individual consumers. In addition to being attracted to preferred products, consumers avoid prices that seem excessive. Many incentive schemes for promoting purchasing appear designed to diminish the salience of payments (e.g., credit cards) or to create the illusion that products have no cost (e.g., frequent flyer mileage) (Prelec and Simester, 2001). To explain these phenomena, recent behavioral economic theories have postulated a hedonic competition between the immediate pleasure of acquisition and an equally immediate pain of paying (Prelec and Loewenstein, 1998). The notion that people consider prices as a potential loss can be contrasted with a different economic account in which people represent prices as potential gains of alternative products that could be purchased for the same amount of money (Deaton and Muellbauer, 1980).The idea that purchase decisions involve a tradeoff between the potential pleasure of acquisition and the pain of paying is consistent, however, with recent neuroscientific evidence that distinct neural circuits related to anticipatory affect provide critical input into subsequent decisions (Bechara et al., 1996; Kuhnen and Knutson, 2005). Mounting neuroimaging evidence suggests that activity in different neural circuits correlates with positive and negative anticipatory affect. In the absence of choice, anticipation of financial gains activates the nucleus accumbens (NAcc) and correlates with self-reported positive arousal, whereas gain outcomes activate the mesial prefrontal cortex (MPFC) (Knutson et al., 2001b). These findings have been interpreted to indicate that NAcc activation correlates with gain prediction, while MPFC activation correlates with gain prediction errors (Knutson et al., 2003). Further findings suggest that anticipation of physical pain activates the insula, among other areas, and that insula activation also correlates with self-reported negative arousal (Buchel and Dolan, 2000; Paulus et al., 2003). Thus, insula activation has been hypothesized to play a critical role in loss prediction (Paulus and Stein, 2006).
Emerging evidence also suggests that activation in these circuits may influence subsequent choice. For instance, during an investing task involving choice of risky (e.g., stocks) or risk less (e.g., a bond) alternatives, NAcc activation preceded switching to risk-seeking strategies (in which anticipated gain should outweigh anticipated loss), while insula activation preceded switching to risk averse strategies (in which anticipated loss should outweigh anticipated gain) (Kuhnen and Knutson, 2005).

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