What is cognitive economics?

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?

Our state of mind is of great importance to us, but economists have mostly ignored it and focused only on the material goods that they can see. Even behavioural economics, which in the last few decades has explored some of the psychological processes behind economic decisions, still deals in money and physical goods – not emotions, hopes, beliefs, fears and ideas.

Cognitive economics is a new field that takes the inside of the mind seriously. It treats all of these mental states, beliefs and emotions as what they are – things people really want – and asks economic questions like: what are we willing to give up to get them? How do we manufacture and distribute them? How much are they worth? And the biggest economic question of all: how can society deliver all of us the best possible outcomes? Not just in terms of material wealth, but of our own mental states.

To see the importance of cognitive economics, look at how you spent the last hour. Taking myself as an example, I have participated in four traditionally "economic" transactions: I made a cup of instant coffee, used my computer (purchased three years ago), sat in my house (which I rent), and put some plates in the dishwasher. None are significant in the economic scheme of things – together, they contribute about £1.90 to British GDP. But what did I do inside my mind?

  • I thought about the ideas behind this article
  • I imagined my readers and what they might want to see
  • I considered aspects of my relationships with colleagues
  • I attempted not to think about the result of the Europa League final last night (with partial success)
  • I was distracted by notifications on my phone
  • I replayed the ending of Game of Thrones in my head
  • I looked at the view of London outside my window
  • I sent some chat messages to a co-worker
  • I imagined what it might be like at the conference I'm missing in Italy
  • I started writing a thank-you note to the hosts of last week's book group
  • I made a mental todo list for a few things I need to remember later
  • I looked forward to next month's holiday in Peru


The list goes on. All of these activities are just as important to my experience of life as any traditional economic transaction. It's true that I need to meet my basic needs – food, shelter etc – in order to have the space to indulge in mental flights of fancy. But once those needs are met, most of us spend only a small proportion of our time and resources on basic survival. Even if you're in a repetitive job earning just enough money to live, your mind can still be off doing other, greater things. The cognitive economy in our heads gets most of our attention, dominates daily life and deserves analysis and understanding.

How a mental state comes about is an important topic of cognitive economics. Sometimes it is a side-effect of an activity like working or eating. Other times we acquire it deliberately by engaging in the media or other forms of communication. Often it is internally self-generated as our mind wanders – but even then, it is a consequence of a previous action, thought or learning experience, which we can analyse. In a sense we can trade mental states – not directly, but by speaking and listening to other people and being willing to absorb their ideas and views.

If we think beyond what's visible, the economy has always been about states of mind. I get half the pleasure of my holiday from anticipating it before it happens. I get much of the pleasure of a film from remembering it afterwards.

Physical objects are like this too. Do I buy a car only in order to have a car? No: I buy it to get from A to B: that is, to gain access to sensory experiences that are further away than walking distance. It may give me extra benefits too: a feeling of status, the pleasure I take in its aesthetic qualities, my affiliation with the brand or the satisfaction of its sustainable electric engine. All of these benefits accrue inside my head, not outside.

So even within the domain of material goods, today's economics is missing a part of the exchange. Everything I do is about managing my subjective, internal experience of the world. Objects are just a means to an end.

Think of the Buddhist monk, able to control their feelings and state of mind by will and disciplined practice, devoid of material possessions. That monk's life may seem strange, but they are not that different from you and me. We all seek to optimise and control our thoughts and feelings. In the old economy, we did it with cars, money, alcohol and perhaps religion. In tomorrow's cognitive economy, we might learn how to do it with digital experiences, language, relationships and by building, in our imagination, the mental worlds we most want to live in.

I believe the future only points in one direction: to a more cognitive, less physical economy. Digital technology and psychological science will enable it, and the environmental constraints of the world demand it.

Comments

norm said…
An example: My Gardening fetish, I spend more on plants and seeds than it would cost me to buy the finished product in the store come harvest time but I would not have boxes of produce to give away. What is that worth to one's mental health? The econ people seem to think altruism is not part of the equation. Econ is one of the better paid professions because it is just so hard to put empirical numbers on norminitive concepts. Political Science suffers the same problem.

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