Professor, Graduate School of Economics and Graduate School of Public Policy, University of Tokyo
Director, University of Tokyo Economic Consulting Ltd.
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Research Plan Overview
This study aims to analyze the effects and brain mechanisms of (A) affective responses to an opponent’s actions in game-theoretic decision-making situations, commonly considered in economics, and (B) affective responses to interventions in decision-making processes, commonly considered in marketing. Previous studies involved neuroscientists using fMRI measurements of an individual’s decision-making process to examine the neural activity that corresponds to abstract economic concepts. In this study, however, economists construct and estimate an economic structural model that incorporates brain activity as a variable, in collaboration with the area representative who is an fMRI expert. The estimated model will be used to conduct a counterfactual analysis of cases in which affective responses in the neural basis are manipulated, in addition to econometrically analyzing the influence of affect on decision-making. Furthermore, since this study uses fMRI, which can simultaneously measure two individuals, it may also involve observing the mutual influence of affect between subjects in dynamic games.
The academic context and core academic question of this study
Advances in behavioral economics have revealed that human behavior deviates from the “rational” behavior assumed by traditional economics and that such deviations occur in reproducible patterns (Bernheim et al., 2018, Handbook of Behav. Econ.). However, researchers have not yet determined the brain mechanisms that are behind the deviations when under the influence of affective responses. This study, therefore, aims to clarify the brain mechanisms that cause economic agents to deviate from “rational” decision-making due to affective responses in the brain. In particular, it examines the effects and mechanisms of (A) affective responses to an opponent’s actions in game-theoretic decision-making situations (e.g., auctions and repeated games), commonly considered in economics, and (B) affective responses to interventions in decision-making processes (e.g., product recommendations), commonly considered in marketing. By doing so, the study enables optimal institutional design in strategic situations such as auctions, as well as improving the efficacy of market interventions such as product recommendations.
Strategic decision-making situations addressed in (A) are situations in which the actions of others have an impact on one’s own interests. Many economic decisions are made when individuals are in such strategic situations rather than in isolation; thus, individuals are likely to have affective reactions to other players’ actions, which presumably causes them to deviate from economically rational decision-making. In an auction bidding war, for instance, a player may attempt to win by paying an amount that exceeds the rational limit. This is a well-known example of a discrepancy between “rational” behavior and the individual’s actual behavior (Charness and Levin, 2009, AEJ Microeconomics). Another known example is that in repeated games, retaliatory behavior occurs more often than what theoretical predictions suggest (Kayaba et al., 2019, Games and Econ.c Behav.). However, little is known about the affective response mechanisms in the brain that cause such deviations, which this study aims to reveal.
As for (B), intervention against behaviors such as inattention and procrastination is deemed important not only in behavioral economics but also in marketing, in terms of both strategic and independent decision-making. A known example in marketing, for instance, is that recommending a specific product to customers increases the probability of them purchasing that product and other products that were not recommended (Kawaguchi et al., 2019, Marketing Science). Although this has been interpreted to be the result of attention spillover, the actual mechanisms are unclear. Focusing on policy and marketing interventions against inattention, procrastination, and other behaviors, this study aims to reveal the affective response caused by such interventions, the brain mechanisms through which the affective responses influence people’s decision-making and product value perceptions, and how the responses change the efficacy of interventions. Furthermore, knowing that there are gender differences in the effects of interventions in economics and marketing, the study hopes to clarify what brain mechanisms are responsible for such gender differences in individuals’ behaviors.