A new scientific branch, neuroeconomics, is already changing the existing knowledge about decision-making, trust, and consumer behavior, and it will also bring new insights into negotiation. Brain activities related to high-risk negotiation and manipulative negotiating tactics are currently being researched.
Written by: Kristina Ozimec
Faculty of Economics
One hundred billion neurons in the human brain have always posed a special challenge for researchers from various scientific fields. One of the most intriguing neuroscience endeavors is to identify the areas of the brain that mediate different mental processes and behaviors. This enigma remains largely unresolved. Until about 40 years ago, any biopsychological research was hampered by the inability to obtain images of the living human brain. The invention of computerized tomography (CT) in the early 1970s revolutionized brain research as it became possible to obtain images of the brain in a living organism. Following this success, other imaging technologies were developed, such as magnetic resonance imaging (MRI), positron emission tomography (PET), and functional magnetic resonance imaging (fMRI). The rapidly advancing technologies and methods for brain analysis have provided the opportunity to directly observe not only brain structure but also brain activity itself. Functional magnetic resonance imaging allows us to see parts of the brain active in performing certain tasks. The advantage of this technology is that within a good paradigm, it can identify parts of the brain active during the viewing of, for example, attractive advertisements, enticing products, but also astronomical prices. Every time we engage in such mental activity, blood flow increases in certain parts of the brain. These changes are recorded by fMRI, and scientists interpret them.
How rational are we?
Although the potential of neuroscientific methods was initially used in medicine and psychology, economists have begun to recognize their value for researching economic concepts in the last decade. The development of fMRI has played a central role in laying the foundations for cognitive process research. The insights gained about social, cognitive, and emotional phenomena and their impact on people’s economic behavior have begun to be utilized by a new discipline – behavioral economics. The latest area that has emerged from it is neuroeconomics. Neuroeconomics is a young scientific discipline that has found itself in the nest between economics, psychology, and neuroscience, and which, in each of these three areas, arrives at insights that aim to explain the background of decision-making and consumer behavior. In addition to contributing to the understanding of the decision-making process regarding purchases, neuroeconomics also plays a role in employee motivation and the development of human capital.
Pricing psychology
Why do we ‘fall’ for 29.99 HRK?
Pricing psychology is crucial for companies that want to optimally set the prices of their products. Although behavioral research has shown that consumers pay more attention to the first digit in a series, it would be interesting to discover the pattern of neural activation that occurs when perceiving the price of 29.99 HRK as significantly cheaper than 30 HRK. Using neuroscientific methods, we could investigate whether different areas of the brain are activated during exposure to the prices of ordinary products (e.g., soap) or special ones (e.g., clothing and well-known brands of sports cars).
With the help of fMRI, the first neuroeconomic studies have been conducted in the past decade that will find their application in the business world. Economic science traditionally assumes that our decisions are perfectly rational and that among the other options offered, we choose the one that brings the most benefits. However, this assumption is highly questionable as we are continuously tempted by immediate pleasures and rewards and are prone to making decisions that are not in our best long-term interest. The mathematical assumptions on which the current rational decision theory is based do not provide the most accurate picture of the decision-making process. The new perspective opened by neuroeconomics through the analysis of neural activity reveals some unknowns and promises better insight into the black box of decision-making.
Predictability of choices
Making purchasing decisions is very important in marketing, so marketing science has begun to weigh the benefits that brain imaging technology can provide. In the USA and the UK, several neuromarketing agencies have already started offering their clients fMRI services to solve commercial problems. Some projects involving neuromarketing agencies have dealt with researching preferences for specific car brands and exploring the connection between color and scent in food products. Other research finds that the pattern of brain activation depends on the predictability of choices and that items of high social value (such as prestigious watch brands or designer clothing) enhance activity in the brain’s reward centers. Although it may initially seem that neuromarketing involves the application of neuroscientific methods exclusively in the area of consumer behavior, it encompasses more than just measuring reactions to a specific product, brand, or advertisement. Marketing research has a broader dimension in which neuroscientific approaches explore trust, pricing, and negotiation.
Old and new partners
Consumer trust in a company’s marketing endeavor is essential for making a purchasing decision. Without trust, we are doomed to opportunistic behavior that does not foster the creation of long-term relationships. In this sense, scientists continue to investigate whether the trust that people have in products activates the same areas of the brain as trust in close friends or family members, and whether trust in a new business partner involves longer and more intense data processing than trust in an old friend. Understanding the nature of trust will enable companies to better understand how they can build longer-lasting and higher-quality relationships with clients. The negotiation process is also becoming a critical subject of research. Game theory is a branch of applied mathematics that studies strategic models within economics where the decisions of others determine an individual’s success. It has played a key role in the evolution of neuroeconomic research. Until now, neuroscientists have mainly focused on competitive and cooperative behavior, while the negotiation process itself has been secondary. Today, not only is its importance recognized, but neuroeconomics has begun to explore how the struggle between emotions and rationality affects negotiation and the areas of brain activity related to high-risk negotiation and manipulative negotiating tactics.
