NEURO ECONOMICS: SCIENCE OR SCIENCE FICTION? (HARVARD BUSINESS SCHOOL)

Are you ready for "neuro everything" in management? The year 2007 will see a flood of books and articles describing findings and conclusions drawn from the growing use of MRI (magnetic resonance imaging) devices for studying decision making. The research follows a pattern. It is based on increasing knowledge that different parts of the brain demonstrate heightened activity when subjected to challenges. Subjects are asked a series of questions (often requiring decisions) while their brains are being scanned (or while they are hooked to lie detectors). The work is being carried out at both European and U.S. universities such as Stanford, George Mason, and Amsterdam. Among the propositions advanced from this work thus far, for example, are that risk and return are assessed in different parts of the brain, thereby questioning theories regarding expected utility on which a great deal of decision theory has been based up to now. Thus, according to this research, different qualities of, say, investment decisions are made when perceptions of risk or greed (return) prevail in terms of heightened brain activity. Another line of work involves the study of the best locus in the brain, conscious or subconscious, for making various decisions. For example, it is thought that more complex decisions involving hard-to-quantify factors are best made in the subconscious after some amount of preparation. That is, study the problem, sleep on it, and decide without further analysis. It's the type of decision making described by Malcolm Gladwell in his book, Blink (http://www.gladwell.com/blink/). According to this line of thinking, questions involving more quantifiable, straightforward considerations are best answered in the conscious portion of the brain, presumably after considerable conscious thought. Work in neuro marketing at Ludwig-Maximilians University in Munich now claims that strong brands create more excitement in decision-influencing areas of the brain than weak brands, even for mundane products. Does this influence purchase decisions? Stay tuned. Just how earth-shaking is this? After all, the late Milton Friedman was said to be most proud of his work with Simon Kuznets in which they concluded that people make purchasing decisions based on what they expect their incomes to be in the long-term, thereby mitigating the short-term impact on personal spending of events such as tax legislation... ...A lot of this comes down to knowing yourself, with or without the benefit of MRI devices. Are we about to be subject to a number of striking conclusions based on studies involving a small number of brain scans? Will there, as my colleague Luc Wathieu suspects, turn out to be other explanations for findings, for example, that question the value of rational, conscious decision making? What are the more general implications of neuro economics? Will it have strong explanatory as well as manipulative potential for us as consumers, managers, and citizens? Will it bring medical schools, business schools, and economics departments closer together? Or is it so far ahead of its time that we can ignore it for now?