Decision making is one of the most common activities we perform on a daily basis, from how we roll our eyes to resolving complicated ethical dilemmas. It has also been one of the main focuses for traditional economics. Economists spend decades to understand how humans make decisions. The traditional thinking in the field suggests that decisions are made rationally and optimally. So in theory, outcomes should be predictable.
However, if that is the case, how can traditional economic theory on decision making explain confusion, indecisiveness and impulsivity?
With the emergence of behavioral economics, more people begin to understand the significance of bounded rationality in decision making. This means our brains do not function as computers, but instead our decisions can be affected by our emotions and cognitive abilities. In fact, neuroscientists have been seeking to understand the neural and behavioral basis of decision making for a very long time.
Studies have shown that when making decisions, the brain takes a variety of information into consideration including fairness, losses and gains, reward values, risks, etc.
Four levels of decision-making
There are many types of decisions for us to make, and different brain regions are involved in the process depending on the decision types. Hu and Wang (2012) categorized decisions into four levels according to their complexity.
- Intuitive – Representing the most basic level of decisions, these are the decisions we make in which we use familiarity, existing preferences and common sense to make decisions.
- Empirical – These are the types of decisions we make based on trial and error, experience and estimation.
- Heuristic – These are decisions we make based on scientific theories, rules of thumb, and beliefs.
- Rational – The most complex level of decision making, this can be split into static and dynamic rational decisions. These are decisions we make based on minimizing cost while maximizing benefit.
Emotion and level two decision-making
Some of the most important decisions we make are the second level decisions. These decisions are usually related to consumption. They require us to evaluate the values or expected values of the available options. Neuroimaging research show that the orbitofrontal cortex and the ventromedial prefrontal cortex in the brain (O/VMPFC) are related to these kinds of decision making. O/VMPFC is known to be responsible for reward and enjoyment in the brain of humans and primates. They connect to our sensory system in two ways. One is a direct connection and the other is an indirect pathway where it goes through the amygdala. The amygdala in the brain performs as a major role in processing emotions, which suggests that emotions might be involved when we make level two decisions. Studies have shown that patients with the O/VMPFC lesion show lack of emotional expressions and difficulties in performing second level decision making (Hu and Wang, 2012).
Speculative hypothesis: Can inhibiting level two decision-making leads to more rational decisions?
This question was examined with the Ultimatum Game, where fairness is a major factor contributes to decision making. The Ultimatum Game is an economic experiment in which the first player receives a sum of money and decides how to split it up. This split is then offered to the second player, who has the choice to then accept or reject the offer. If the second player rejects the offer, then neither the player gets any money. A study done in 2006 tested whether a lesion to certain brain areas would affect a player’s ability to take an unfair, but still beneficial offer. In this experiment, the split was always unfair, where the first player kept more of the money than he offered to the second player. So for example, if $100 was allocated to the first player, they might split it up 80/20, offering the second player $20, or ⅕ of the total amount. Player 2, when offered an unfair split, often rejects the offer because it is perceived as being ‘unfair’.
The right dorsolateral prefrontal cortex (DLPFC) has shown to be related to decisions that reject the unfair offers. The study done in 2006 suggested that participants with lesion to this part of the brain lead to the acceptance of the unfair, but still beneficial offer. While any inference here is purely speculative, an interesting question to explore would be whether damage to this part of the brain, which is involved with level 2 decision-making, may lead to more rational decisions. In the Ultimatum Game, the rational decision is to accept the unfair offer since gaining some money is always better than nothing.