Isabelle Brocas and Juan D. Carrillo over at Vox EU:
Economics has always relied on a careful modelling of decision-makers. They are described by utility functions that represent their goals, and they interact at (Nash) equilibrium. Nevertheless, the discrepancies between theoretical predictions and observed behaviour have haunted the field for many decades.
To cope with this mismatch, behavioural economists have developed new theories of decision-making that are a better fit for the behavioural data than traditional models. The methodology consists in building models to demonstrate the relationship between a cause (such as a preference for a particular object) and a behavioural anomaly. This line of research formulates possible explanations for behavioural data, but it is nevertheless subject to shortcomings. Often the cause is not observable, and there is no evidence of the relationship provided by the model. Most notably, the freedom provided by the introspection method leads to a model selection problem. Also, the cause of the behavioural anomaly may simply lie elsewhere.
Neuroeconomics offers a solution through an additional set of data obtained via a series of measurements of brain activity at the time of decisions. Experimental neuroeconomics can be seen as a subfield of experimental economics, where behavioural data is enriched with brain data. Neuroeconomic theory proposes to build brain-based models capable of predicting observed behaviour.
Experimental neuroeconomics is controversial. While some consider it to be an irrelevant body of research, there are those who claim it is essential (see Camerer, et al. 2005, Gul and Pesenderfor 2008). In fairness, the field is probably too young to tell. Surprisingly, the discussion has been centred on empirical issues regarding the collection method, amount, cost, and quality of brain data – the broad implications have not received as much attention. Indeed, the new set of data provided by experimental neuroeconomics will shed light on the causes of behaviour (and therefore of the behavioural anomalies) and help build new theories capable of explaining and predicting decisions, a long-term goal of economics. Neuroeconomic theory offers to do precisely this. So far, research in that direction has been very limited and its impact has been largely ignored.