February 27, 2003

Excuse Me, What's Your Oxytocin Level Today?

I don't know about you, but in the future I'm only making contracts with people with elevated oxytocin levels...

Virginia Postrel writes about those who are beginning to found the subdiscipline of Neuroeconomics:


Looking Inside the Brains of the Stingy: ...Professor Zak and his colleagues study trust with a variation of the ultimatum game. Each player receives $10. Player 1 gets an additional $10. Players interact anonymously over computers. Player 1 can send any whole-dollar amount to Player 2. Whatever he sends is tripled, so a $5 gift turns into $15. Finally, Player 2 can return some of the money to Player 1.

If Player 1 expects Player 2 not to send any money in return, Player 1 will keep the initial stake. That's the game's standard equilibrium.

"In fact," Professor Zak said, "most people send about half of their stake to Player 2. They're signaling that they want to trust them." In response, about 75 percent of the Player 2's return some money, making both better off.

"Even though we can't see each other and we don't know each other, we understand the other person as a human being," Professor Zak said. Extrapolating from animal results, he hypothesized that the hormone oxytocin, which is associated with social bonding, might play a role.

"When you read the studies on lower mammals," he said, "everything suggests that this is a candidate to induce trustworthiness because it's something that you would not consciously be aware of and yet it would influence decision making."

Researchers tested each subject's blood for eight different hormones right after the person made the decision about whether to send money. For Player 1, no hormone appeared to make a difference. But the more money the Player 2's received, the higher their oxytocin, even after controlling for factors like age, sex and menstrual cycle timing. The higher the oxytocin, the more money each Player 2 returned.

That response didn't correlate with various personality measures. "It's not that these people who returned more money are just nicer," Professor Zak said.

The New York Times Sponsored by Starbucks

February 27, 2003

Looking Inside the Brains of the Stingy

By VIRGINIA POSTREL

HERE's a game economists play: Player 1 has $10 and can give any dollar amount to Player 2. Player 2 can either accept or reject it. If Player 2 accepts, they both keep the money. If Player 2 rejects it, neither player gets anything.

What should the players do? Arguably, Player 2 should accept whatever is offered, since some money is better than none. Player 1 should thus offer as little as possible: $1. That strategy is the standard game-theory equilibrium.

But that's not necessarily what happens when real people play this "ultimatum game" in laboratory settings with real money on the line. Faced with low-ball offers, many Player 2's reject them. And many Player 1's make more generous offers, often nearly half the money.

"About half the subjects that we observed played according to the way the game theory said people should play, and about half didn't," said Kevin McCabe, an economist and director of the Behavioral and Neuroeconomics Laboratory at George Mason University.

The Player 1's who do not follow the presumably rational strategy often wind up better off. Even without communicating with fellow players, they are able to cooperate for mutual benefit.

Why do people react differently to the same situation? And why do so many people give up money to punish anonymous cheapskates?

Experimental economists have mapped out these anomalies and tested how much they affect economic interactions. Now a new field, called neuroeconomics, is using the tools of neuroscience to find the underlying biological mechanisms that lead people to act, or not act, according to economic theory.

In neuroeconomics, volunteers go through exercises developed by experimental economists studying trust or risk. Instead of simply observing subjects' behavior, however, researchers use imaging technologies, like M.R.I.'s, to see which brain areas are active during the experiment.

Researchers at Princeton, for instance, have found that receiving low-ball offers stimulates the part of the brain associated with disgust. "They can predict with good reliability, from looking at the brain, what a person will do," said Colin F. Camerer, an economist at the California Institute of Technology. "People whose brains are showing lots of disgust will reject offers."

Professor Camerer says looking inside the brain's "black box" is like looking inside a company. Traditionally, economists treated a company as a largely automatic "production function" that turns labor, capital and resources into output. Over the last several decades, however, many economists have turned their attention to understanding companies' internal workings. Most prominently, "agency theory" examines how companies can be governed to encourage employees (the "agents") to pursue the goals of the owners, rather than their personal agendas.

This research hasn't replaced the production-function approach, but it has enriched economists' understanding of company behavior. Neuroeconomists want to do something similar for how individuals make economic choices.

"Neuroeconomics could be to consumer theory what agency theory is to the production-function approach," Professor Camerer said.

While many economists remain skeptical, neuroscientists have welcomed the interest.

"Anyone working with the brain likes this approach because economists have these nicely defined behavioral models," said Paul Zak, an economist and director of the Center for Neuroeconomics Studies at Claremont Graduate University.

Neuroscientists do experiments like looking at which parts of the brain are active when someone looks at photographs and decides which faces are trustworthy. Neuroeconomists don't just ask people to use their imaginations, though ? they have subjects play laboratory games to find out what happens in real interactions.

Professor Zak and his colleagues study trust with a variation of the ultimatum game. Each player receives $10. Player 1 gets an additional $10. Players interact anonymously over computers. Player 1 can send any whole-dollar amount to Player 2. Whatever he sends is tripled, so a $5 gift turns into $15. Finally, Player 2 can return some of the money to Player 1.

If Player 1 expects Player 2 not to send any money in return, Player 1 will keep the initial stake. That's the game's standard equilibrium.

"In fact," Professor Zak said, "most people send about half of their stake to Player 2. They're signaling that they want to trust them." In response, about 75 percent of the Player 2's return some money, making both better off.

"Even though we can't see each other and we don't know each other, we understand the other person as a human being," Professor Zak said. Extrapolating from animal results, he hypothesized that the hormone oxytocin, which is associated with social bonding, might play a role.

"When you read the studies on lower mammals," he said, "everything suggests that this is a candidate to induce trustworthiness because it's something that you would not consciously be aware of and yet it would influence decision making."

Researchers tested each subject's blood for eight different hormones right after the person made the decision about whether to send money. For Player 1, no hormone appeared to make a difference. But the more money the Player 2's received, the higher their oxytocin, even after controlling for factors like age, sex and menstrual cycle timing. The higher the oxytocin, the more money each Player 2 returned.

That response didn't correlate with various personality measures. "It's not that these people who returned more money are just nicer," Professor Zak said.

Neuroeconomists caution that their research is just starting. But that does not reduce their enthusiasm.

"For me, it's just an extremely exciting area in terms of potential," Professor McCabe said. "There's always new findings every day."

Posted by DeLong at February 27, 2003 08:09 PM | TrackBack

Comments

The subjects for this exercise must have been either broke or highly competitive individuals- $10 dollar stake to begin with, or twenty if you are player one. . . doesn't seem like this is going to make a big difference in your future happiness or financial security. With this small a stake, it would be easy for player one give away a significant percentage, money in this case would seem to be just a way of keeping score. I guess I find it hard to believe that and individuals oxytoxin or any other level would be increased because they received an $8 dollar gimme instead of $3 (unless I was broke or really wanted to "win" the game) Start with $500 though. . .

Posted by: harv on February 27, 2003 08:47 PM

Hm. Sounds like the subjects were probably college students.

Posted by: Jon H on February 27, 2003 09:12 PM

I wish the media would publish real neuroscience research...

Posted by: alf on February 27, 2003 10:05 PM

In a prisoners' dilemma match, normally two contestants are engaged in a repeated match where each time they choose to cooperate or not. The most commonly successful strategy is to offer cooperation the first time around and after that to mimic the other's previous move.

This study mentions nothing about actual interaction, so it's not saying much if anything. Offering is a gamble on the expected personality of the other so it says little about your own personality. Sure, oxytocin tends to cause people to bond (released in extra quantities during birthing and sex) so I'm sure it causes generosity and trust. So maybe some people will tip higher at a restaurant to which they never intend to return. Or they may give more to charity or vote for Democrats instead of Republicans or be initially inclined to cooperate with co-workers.

But the whole idea of rejecting a low ball offer or non cooperative behavior is of course that someone should improve their offer or behavior to a mutually beneficial one. If you tip high maybe you will get better service next time.

Now what would be much more interesting is to have these players in a continuous competition and see how insistent various players are at "enforcing" they get a good deal and if they try to take advantage or accept less. And like harv says.... do it with real money to subjects that could use some. (For this ultimatum game, mutually beneficial equilibrium should be offer all $10 and return $20 which is the initial plus half the profit).

Posted by: snsterling on February 27, 2003 10:12 PM

WASHINGTON, Feb. 27 In nominating a respected Harvard economist as one of his top advisers, President Bush has now replaced nearly everyone from his original economic team with people who at one time spoke out against the kinds of policies Mr. Bush is prescribing.
http://www.nytimes.com/2003/02/28/business/28ECON.html

Take two pills and give me ten dollars in the morning.

Posted by: Bruce Ferguson on February 27, 2003 10:15 PM

Elevated oxycotin levels are a primitive marker for trust levels. Right now we can only manage to understand what we can measure, and even with the most advanced fMRI, PET and EEG, we still require individual genetic and protein data to make sense of most action.

Neuroeconomics has a bright and interesting future, especially in light of the fact that as brain science and biotechnology create neuroceutical tools that enable humans to influence our individual emotional, cognitive and sensory states, in a relatively optimal fashion, we will in fact be consciously influencing the fabric of the game, all games.

Neuroeconomics will help shed light on how neuroceuticals, the set of new low cost inputs that is spurring the neurotechnology wave, will recreate industries, generate new forms of social and political organization and enable new modes of artistic expression.

Really...the wheel has only recently been invented. We haven't even figured out how make a horse-drawn chariot.

www.neurosociety.net

Posted by: Zack Lynch on February 27, 2003 10:15 PM

you know, we've got a research MRI here at Berkeley too...

Posted by: Elizabeth Weber on February 27, 2003 10:43 PM

V. Postrel is a beacon.

Here is why neuroeconomics, as difficult as it might feel to those not versed deeply in evolutionary biology, neuroscience and economic geography:

Neurotechnology represents the next form of competitive advantage for organizations beyond today's information technology focus. Innovation is a complex mental function wherein cognitive assessment and emotional compassion combine to accelerate the creation of new knowledge.

By influencing multiple personality characteristics, neurotechnology, in the form of neuroceuticals, will enable behaviors that will likely culminate into a substantially different behavioral repertoire than people currently are capable of having or the ability to understand how to encounter and ingest them.


Posted by: Zack Lynch on February 27, 2003 10:53 PM

It's only a matter of time before contract
negotiations involve a lot of maneuvering
to get the other side to ingest an oxytocin
boosting beverage.

(The vessel with the pestle...)

Posted by: Jon H on February 27, 2003 11:09 PM

Jon,

there's a good low-tech way to implement your plan. Next time you're in negotiations, shove an adorable wee baby into your opponent's face. You, OTOH, concentrate on the stinking nappy...

Posted by: Mrs Tilton on February 28, 2003 04:14 AM

"Citizen BDL 4423, please take three green pills every four hours to normalize your serum oxytocin level. If you fail to comply, you will be arrested for illegal drug evasion."

Posted by: Seth Gordon on February 28, 2003 06:18 AM

"By influencing multiple personality characteristics, neurotechnology, in the form of neuroceuticals, will enable behaviors that will likely culminate into a substantially different behavioral repertoire than people currently are capable of having or the ability to understand how to encounter and ingest them."

To the immense benifit of Soviet Psychiatry.


Posted by: Jonathan Goldberg on February 28, 2003 06:22 AM

snsterling,

Long ago, in this very weblog, the perfesser posted a play-by-play, with commentary, when two famous economists were set to playing with/against each other in a game involving many rounds. Trust, discipline and reward were designed into the game, something both players realized, as is evident from their comments. Probably hard to find now, but worth the look.

For those who are surprised at the motivational effect of small amounts of cash, I'm pretty sure that is a standard finding of such games. Players very quickly get inside the game, behave as if $10 (in some older studies on congnitive dissonance I have seen, even $1) is worth working for. Why to millionaires continue to strive after the next chunk of money when their bellies are already full? Because that's the game.

Posted by: K Harris on February 28, 2003 07:21 AM

But this doesn't seem to me to establish that oxytocin levels influenced Player 2's decision.

Two separate things happen to player 2:

1. He receives money from player 1
2. His oxytocin level goes up.

Then, he gives money back to player 1, and we find a correlation between money paid back and BOTH money received and oxytocin level.

So why isn't it plausible that, while getting money may raise oxytocin, the amount paid back is just a function of the amount received, and is unaffected by oxytocin?

Posted by: Bernard Yomtov on February 28, 2003 09:06 AM

If I read Virginia's article correctly, there are two things going on:

1) Players #2 with high oxytocin levels will (whether they were given a lot of money or not) repay a high proportion of the money they were given.

2) Players #2 who are given a lot of money will have high oxytocin levels.

It's the fact that Players #2 who have high oxytocin levels but who were not given a lot of money nevertheless repay a high proportion of the (not very much) money they were given that leads the experimenters to think that they have something here...

Posted by: Brad DeLong on February 28, 2003 10:03 AM

Will this new stategy be more effective than my existing policy of negotiating only with drunks, or less?

Posted by: Paul Zrimsek on February 28, 2003 10:22 AM

"...the more money the Player 2's received, the higher their oxytocin, even after controlling for factors like age, sex and menstrual cycle timing. The higher the oxytocin, the more money each Player 2 returned."

That doesn't sound to me like the amount returned is independent of the amount received.

And it also says,

"For Player 1, no hormone appeared to make a difference. "

Why would oxytocin affect Player 2, but not Player 1?

Posted by: Bernard Yomtov on February 28, 2003 10:40 AM

Now that remind me of synthethol, the Ferengi favourite drink.

DSW

Posted by: Antoni Jaume on February 28, 2003 02:43 PM
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