Wednesday, January 4, 2012

At Last a Utilometer?

By Lewis Sage

Looks as if our colleagues in cognitive neuroscience are on the way to removing one of the most familiar limitations of microeconomics, our inability to measure satisfaction directly.  Writing in the Fall, 2011 issue of The Journal of Economic Perspectives, Ernst Fehr and Antonio Rangel review recent fMRI advances that may give researchers a “utilometer,” an instrument whose metric captures that elusive feeling of wellbeing.  Economists’ traditional approach to the problem has been to use the principle of revealed preference, the claim that rational people more-or-less infallibly select the most preferred option available.  There are a couple of problematic assumptions underlying that model – notably the premises of rationality and precise judgment – but it’s been the best approximation for a long time.  We’re a long way from abandoning the principle of revealed preference, but the underlying premises may yield to fruitful revision.
First, the issue of measuring utility directly.  It seems that my brain divides the task, using different areas to paint the “before” and “after” pictures, with my ventromedial prefrontal cortex acting as my personal calculator of expected utility and transcranial wire-tapping providing a read-out.  Preferences revealed in subjects’ willing to pay to receive a prospective prize (or to avoid a prospective punishment) are correlated with their levels of VPC neural activity.  And, supporting economists’ habit of treating costs avoided as benefits achieved, winning and not losing are apparently measured on the same scale and with the same neuroanatomical tool.   My experience of utility from actually consuming a good – as opposed to expected satisfaction – is measured elsewhere, in my orbitofrontal cortex and the nucleus accumbens.  And there is evidence of a functional connection between these apparatuses: experienced satisfaction appears to be inversely correlated with anticipated satisfaction.  Translation: I prefer happy surprises to disappointment.  Good to know.
Peeking into the brain also provides insight into the familiar – to economists at least – concept of indifference between alternatives.  Evidence in the form of activity in the dorsomedial prefrontal cortex and bilateral interparietal sulcus provides preliminary support for the “drift-diffusion” model of stochastic choice based on closeness of options.  Indifference curves, for those of us who care about such things, turn out to be thick and fuzzy.  Translation: the less difference between alternatives, the harder it is to choose consistently.  So much for the premise of precise rational decision-making.  Apparently, I don’t even know my own mind with any reliability.  Which means that I’m likely to make mistakes.  The good news, however, is that, if I pay enough attention, they are unlikely to be big mistakes.  Comforting.
So... we can measure utility directly, if only approximately, whether we're neuroscientists or ordinary humans.  And, as a bonus, I’m really pleased to learn how many internal calculators I’m able to coordinate without being aware of any of them.

Dr. Lewis C. Sage (AB Kenyon, PhD U. Maryland) likes intersections. Since 1991, he has taught Law and Economics, Mathematical Economics, and the Economics of Healthcare. A former Fulbright Fellow (Bulgaria 1995-6), he teaches an interdisciplinary Honors seminar, Enduring Questions, and is studying strategy in the NFL draft with faculty and students in Sport Management and Psychology. E-mail:

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This blog lives under the auspices of the Department of Economics whose mission has been to hold high the lantern beaming an "economic way of thinking" onto the world. Selfishness, rationality and equilibrium have been central to the teaching of an economic way of thinking rooted in the Renaissance. And, in this regard, the department has faithfully stayed the course. The intent of this blog, thinking out loud..., however, is to entertain exchanges which may challenge the centrality of economics as we teach it.