In recent years we’ve become used to thinking about decisions as “system 1” or “system 2”. System 1 choices are automatic decisions, made without thinking, based on an immediate emotional or sensory reaction. System 2 is used to stop and rationally calculate the consequences of our choices, and determine the best cost-benefit tradeoff.
But these two processes don’t capture every decision. Indeed they might only encompass a minority of our daily choices.
Recent work in neuroscience and psychology has discovered another way of making choices: with the imagination. Customers imagine their possible futures: the outcomes they would experience after a choice, and how those outcomes will make them feel. The future that makes them feel happiest will be the one they choose. These choices use different parts of the brain than System 1 and 2. They are called System 3 choices.
Think about how you might buy a car. System 1 would suggest that you see a colour, or shape, or brand of car, immed…
What's happening inside your head right now? What thoughts, feelings, ideas are spinning around in there? Are they important to you? If you were not able to think those thoughts, would you care? How much does your internal mental experience matter to you?
To an economist: not at all. Traditional economics explicitly rules out any consideration of how people think, and what is going on in their minds or hearts. Economists only trust what they can observe: specifically, the things you buy and sell. This can include selling your labour (for a wage) and buying and selling services, but in practice it mostly means the physical goods that we buy and consume.
Yet most of us know there is more to life than buying and selling. The activities inside our heads are a major – maybe the major – contributor to our quality of life. Are you happy? Do you have purpose in your life and work? Do you feel appreciated? Are you looking forward to the future or anxious about it?
For the first time, there will be a session on Cognitive Economics at the American Economic Association’s conference. The conference, in association with the ASSA, is taking place from Friday 4 January to Sunday 6 January and will be a hugely interesting programme over the long weekend.
The Cognitive Economics session will take place on Sunday 6 January 2019 at 8-10am in Atlanta Marriott Marquis, International 10. I hope that any readers who are attending the conference are able to come along!
Let’s give you a quick overview of the session: Dan Benjamin, University of Southern California; Kristen Cooper, Gordon College; Ori Heffetz, Cornell University and Hebrew University of Jerusalem; Miles Kimball, University of Colorado Boulder will be presenting a paper on What Do People Want? On the use of large-scale surveys to estimate multidimensional indifference maps over "fundamental" goods that include mental states such as emotions, perceptions and beliefs: answering the quest…