Wednesday, February 24, 2010

Is a preference for equality hardwired?

In my classes (particularly Economics 349) I've talked about inequality and, to a small extent, concerns over fairness. Now, there is new neuroeconomics research out showing that individuals may have an innate preference for equality:

Caltech scientists find first physiological evidence of brain's response to inequality: Brain images during money-transfer experiments show "rich" participants prefer to see others get financial windfall

PASADENA, Calif.—The human brain is a big believer in equality—and a team of scientists from the California Institute of Technology (Caltech) and Trinity College in Dublin, Ireland, has become the first to gather the images to prove it.

Specifically, the team found that the reward centers in the human brain respond more strongly when a poor person receives a financial reward than when a rich person does. The surprising thing? This activity pattern holds true even if the brain being looked at is in the rich person's head, rather than the poor person's.

These conclusions, and the functional magnetic resonance imaging (fMRI) studies that led to them, are described in the February 25 issue of the journal Nature.

"This is the latest picture in our gallery of human nature," says Colin Camerer, the Robert Kirby Professor of Behavioral Economics at Caltech and one of the paper's coauthors. "It's an exciting area of research; we now have so many tools with which to study how the brain is reacting."

It's long been known that we humans don't like inequality, especially when it comes to money. Tell two people working the same job that their salaries are different, and there's going to be trouble, notes John O'Doherty, professor of psychology at Caltech, Thomas N. Mitchell Professor of Cognitive Neuroscience at the Trinity College Institute of Neuroscience, and the principal investigator on the Nature paper.

But what was unknown was just how hardwired that dislike really is. "In this study, we're starting to get an idea of where this inequality aversion comes from," he says. "It's not just the application of a social rule or convention; there's really something about the basic processing of rewards in the brain that reflects these considerations."

The brain processes "rewards"—things like food, money, and even pleasant music, which create positive responses in the body—in areas such as the ventromedial prefrontal cortex (VMPFC) and ventral striatum.

In a series of experiments, former Caltech postdoctoral scholar Elizabeth Tricomi (now an assistant professor of psychology at Rutgers University)—along with O'Doherty, Camerer, and Antonio Rangel, associate professor of economics at Caltech—watched how the VMPFC and ventral striatum reacted in 40 volunteers who were presented with a series of potential money-transfer scenarios while lying in an fMRI machine.

For instance, a participant might be told that he could be given $50 while another person could be given $20; in a second scenario, the student might have a potential gain of only $5 and the other person, $50. The fMRI images allowed the researchers to see how each volunteer's brain responded to each proposed money allocation.

But there was a twist. Before the imaging began, each participant in a pair was randomly assigned to one of two conditions: One participant was given what the researchers called "a large monetary endowment" ($50) at the beginning of the experiment; the other participant started from scratch, with no money in his or her pocket.

As it turned out, the way the volunteers—or, to be more precise, the reward centers in the volunteers' brains—reacted to the various scenarios depended strongly upon whether they started the experiment with a financial advantage over their peers.

"People who started out poor had a stronger brain reaction to things that gave them money, and essentially no reaction to money going to another person," Camerer says. "By itself, that wasn't too surprising."

What was surprising was the other side of the coin. "In the experiment, people who started out rich had a stronger reaction to other people getting money than to themselves getting money," Camerer explains. "In other words, their brains liked it when others got money more than they liked it when they themselves got money."

"We now know that these areas are not just self-interested," adds O'Doherty. "They don't exclusively respond to the rewards that one gets as an individual, but also respond to the prospect of other individuals obtaining a reward."

What was especially interesting about the finding, he says, is that the brain responds "very differently to rewards obtained by others under conditions of disadvantageous inequality versus advantageous inequality. It shows that the basic reward structures in the human brain are sensitive to even subtle differences in social context."

This, O'Doherty notes, is somewhat contrary to the prevailing views about human nature. "As a psychologist and cognitive neuroscientist who works on reward and motivation, I very much view the brain as a device designed to maximize one's own self interest," says O'Doherty. "The fact that these basic brain structures appear to be so readily modulated in response to rewards obtained by others highlights the idea that even the basic reward structures in the human brain are not purely self-oriented."

Camerer, too, found the results thought provoking. "We economists have a widespread view that most people are basically self-interested, and won't try to help other people," he says. "But if that were true, you wouldn't see these sort of reactions to other people getting money."

Still, he says, it's likely that the reactions of the "rich" participants were at least partly motivated by self-interest—or a reduction of their own discomfort. "We think that, for the people who start out rich, seeing another person get money reduces their guilt over having more than the others."

Having watched the brain react to inequality, O'Doherty says, the next step is to "try to understand how these changes in valuation actually translate into changes in behavior. For example, the person who finds out they're being paid less than someone else for doing the same job might end up working less hard and being less motivated as a consequence. It will be interesting to try to understand the brain mechanisms that underlie such changes."

Joseph Stiglitz on CBC's The Current

As part of the promotions for his new book, Joseph Stiglitz appeared on CBC's The Current.

Nobel-Prize-winning economist Joseph Stiglitz argues in his new book, "Free Fall: America, Free Markets and The Sinking of The World Economy", that the global economic crisis the world is still recovering from could happen again.
Well worth the 15 minutes of listening time. (This is only part 1 of the interview.)

Thursday, February 18, 2010

Stiglitz on Democracy Now

Nobel prize winning economist Joseph Stiglitz appeared on Democracy Now this morning. Among other things, he discusses his new book his views of the U.S.economy on the one-year anniversary of the stimulus package. I was particularly intrigued by his views on "ersatz capitalism" that have resulted in the privatization of gains and socialization of losses (via the stimulus).

Friday, February 5, 2010

Tyler Cowen on Temple Grandin

In a recent blog post, Tyler Cowen (GMU website) discusses his interview with Temple Grandin and his thoughts on autism. I have a vested interest in autism therapies and research and liked the post. I particularly agree with Tyler's ideas on therapy:
Grandin supports some varieties of intensive behavioral therapy for autistics. Many research papers support those same therapies but those papers do not generally conduct an RCT (randomized controlled trial) and furthermore many of the said researchers have a commercial stake in what they are studying and promoting. In my view we don't know "what works" but my (non-RCT-tested) opinion is that giving autistic children a lot of fun things to do -- fun by their standards -- and a lot of information to study and manipulate, gives the best chance of good outcomes. (In any case "spontaneous improvement" is considerable, so anecdotally many therapies will appear to work when they do not; nor is there a common control for placebos.) Many of the behavioral therapies seem quite oppressive to me and if we don't know they work I am worried that they are being overpromoted. Grandin has in some ways the intellectual temperament of an engineer and I am worried that she has not absorbed the lessons of Hayek's The Counterrevolution of Science.
There is an HBO movie coming out on Temple Grandin later this week.

Picture This Film Festival

The Picture This Film Festival is taking place in Calgary February 8-10.

Picture this…film festival is an international disability film festival. It is a non-profit annual event initiated by the Community Development department of Calgary Scope Society, a registered non-profit society.

The Calgary Scope Society provides services to adults with disabilities and is one of the charities recently in the news regarding the budget cuts to service providers for people with disabilities.

Wednesday, February 3, 2010

Oscar Nomination for Daniel Ellsberg

A documentary film about Daniel Ellsberg (the Most Dangerous Man in America) has been nominated for an academy award in the documentary category. Ellsberg is best known to economists for his work in decision theory and the Ellsberg Paradox.

Canada's Growth Rate

Last week, Statistics Canada reported the Canadian GDP growth rate for November 2009:

Real gross domestic product advanced 0.4% in November, a third consecutive monthly increase. As was the case in September and October, most major industrial sectors increased their production.
This rate falls significantly below that of the US for the same period.

I haven't seen the numbers by region, but the following suggests that things in Alberta are improving ahead of other provinces:

The mining sector increased 1.8% in November, largely on the strength of oil and gas extraction. Natural gas production rose as prices, while remaining low compared with a year ago, increased recently. Oil extraction went up as foreign demand increased. Support activities for mining, oil and gas extraction advanced for a fourth month in a row.