HUMAN ACTION
Neuroscientist explores why people decide to take actions that create immediate rewards
BY DOUG FRENCH

In his book Why Choose This Book? How We Make Decisions, Dr. Read Montague takes us inside the brain to understand how we make decisions. Montague is no economist. Neuroscience is his beat. Why Choose uses computational neuroscience, an extension of evolutionary biology that studies the actual information processing supported by our brains, to try and figure just why humans act the way they act. 

It doesn’t take long for Montague to touch on the study of an investment game that he set up with two economists, Kevin McCabe and Colin Camerer, based on a similar experiment designed by mathematician Terry Lohrenz. The subjects of the experiment were given $100 to invest, making their decisions against 20 different markets. Montague and the two economists used “historical market traces and measured brain and behavioral responses to these,” writes Montague. 

Fifty-two subjects played the investment game in the scanners but had no idea they were playing in actual historical markets. Two of the markets used in the simulation were particularly brutal to the 52 participants; the 1987 stock market crash and the 1929 crash. None of the subjects earned money in the 1929 crash simulation and many lost more than half their portfolio. “This market,” Montague explains, “out of all twenty used, lulled subjects’ decision mechanisms into a kind of stupor and then — bang. Goodbye, money.”

The variable that most drove behavior in the investment game in all markets was regret. Regret was a big factor when subjects changed their investments and also “showed up as an extremely strong neural signal in a reward-decision-making region of the brain, the ventral putamen, the same site where reward-prediction error signals appear.” Thus, the brain treats counterfactual experience the same as it does real experience.

Montague believes this is significant because as gambling games evolved to “exploit the frailties of our biological valuation and decision-making machinery,” the 1929 market “hit a kind of fragile ‘sweet spot’ of valuation and decision machinery in the subject’s brain.”

Regret in this case is the difference between the value of what is, and the value of what could have been. Montague offers what he calls a pseudoequation: “Terry Malloy’s Regret = (value of being a contender - value of being a bum).” Why this is important is something called dopamine, a chemical in the brain that helps humans decide how to take actions that will result in rewards at the right time.

People don’t get a dopamine kick when they get what they expect, only when they make an unexpected windfall. Thus, as Jason Zweig writes in Your Money and Your Brain, drug addicts crave ever-larger fixes to achieve the same satisfaction and “why investors have such a hankering for fast-rising stocks with ‘positive momentum’ or ‘accelerating earnings growth.’” Also, dopamine dries up if the reward you expected fails to materialize.

The work of Montague and Lohrenz indicates that, regret, “the counterfactual leaning signal, was a powerful determinate in the betting decisions that created [subject] losses while playing against the 1929 market,” Montague writes. “In fact, as cultural and financial historians run that period through various analyses, regret about a host of decisions, individual and institutional, permeates every one.”

Although us economics and finance junkies are interested in Montague’s work in those areas, the mission of Why Choose is to take apart our minds’ machinery for decision-making. The book’s second chapter compares the brain to a computer, with the title “The Brain is (Almost) Perfect” but the subtitle gives away the punch line: “It’s Slow, Noisy, and Imprecise.”

Montague then speaks to how humans deceive themselves into believing that they are above average like all the children in Garrison Keillor’s Lake Wobegon. The Baylor neuroscience professor also discusses how humans, as in the case of the Heaven’s Gate cult, used an abstract idea — going to the “next level” — to veto their survival instincts. As Montague points out, sharks can’t go on hunger strikes. 

So if our decision-making process is what makes us distinctly human, with all the frailties and biases that go with it: “So what are we humans?” asks Montague. “We are meaningful patterns of information processing composed of two kinds of computation: those computations on which all perception and movement depend plus their valuations.”

As Montague points out, if these values aren’t known, our system would be unable to choose. And the ability of our brains to choose is what makes us human. The late, great economist Ludwig von Mises called this choosing “human action.” I would call it economics.

Doug French, associate editor of Liberty Watch: The Magazine, is an executive vice president of a Nevada bank. He is the 2005 recipient of the Murray N. Rothbard Award from the Center for Libertarian Studies.