Have you ever heard about neuro-economics? Even though you never heard about it, you probably heard about economics!
What is Economics? Economics is based on many theories to explain economic effects around us. It was useful for many companies and government to manage their organization and make their policy for many decades. But as you can easily understand, the traditional economics doesn’t look like it works well in these days. Then, why is this happened?
As you know, Economics has many assumptions based on theories and there is one biggest assumption in this academic area. That is “Human makes their decision to maximize their profit”. But do you think human really think and act in that way?
Let’s assume that you are a person who smokes every single day studying Economics. You will go to a convenient store to buy a pack of cigarette. Every time when you try to buy it, you continuously see a warning sign written on the box. You do know that smoking can kill you and do acknowledge that cigarette is very harmful for you. And probably you will have to spend most of your money to cure yourself after you got a cancer because of smoking, but still you are smoking. You are major in economics but that doesn’t change anything to you. You just think that smoking is your habit and you want it because you like it.
In traditional Economics point of view, you cannot explain what is going on here. You are major in economics and you are a person who want to maximize your profit because you are rational and well-educated person. However, you will never quick smoking just because of the reason that you are a person who are an expert in economics.
The basic problem is that we human are not a person who is always rational and try to maximize profit. We are not a machine which is for making money. We all know this fact, but the classical economics doesn’t accept this. In the principle assumption of economics, we, human, are rational and those who try to maximize profit. This is why neoclassical economists start concentrating on neuroeconomics.
What is neuro-economics? Neuroeconomics is a combined word from neuro(n) and economics. Neuron is one type of basic unit in biological cells and neuroeconomics means that neo-classical economics which consider human factors in their theory in economics. Then what is the biggest difference between economics and neuroeconomics?
Neuroeconomists claim that we, human, are not rational and don’t always try to maximize their profit. They also claim that people try to maximize their utility, but that is not totally corresponded to their financial profit, which can be personal pleasure, political belief, self-esteem and so on. With this kind of the concept, they claim that they can explain more about the economical events which cannot be explained with classical economics.
In next time, I will show you basic theories with fun examples in neuroeconomics. This will help you to understand more about economical events what you couldn’t understand with the traditional economics. In the later articles in this series, I will show you how can this can be applied to the financial policy and government level policy making.