Knowing and Making

This article (from Jonah Lerner at Science Blogs, via Farnam Street ) looks quite important at first: A recent study led by Brian Knutson of Stanford, Drazen Prelec of MIT and George Loewenstein at Carnegie Mellon [ LC: a good start - I met Prelec at a seminar last year, very smart guy - and Loewenstein wrote my favourite behavioural economics book ] ...when subjects were shown pictures of an object they wanted...brain areas associated with anticipated rewards, such as the nucleus accumbens, exhibited a spike in activity... When the experimental subjects were exposed to the cost of the product, their insula and prefrontal cortex were activated. The insula secretes aversive feelings, and is triggered by things like nicotine withdrawal and pictures of people in pain. In general, we try to avoid anything that makes our insula excited. Apparently, this includes spending money... ...this data directly contradicts the rational models of microeconomics. Consumers... don't... perform an ...

I'm reading George Loewenstein's book Exotic Preferences at the moment (still waiting for Tyler Cowen's to arrive) and enjoying it greatly. It's a collection mainly of journal papers and speeches authored by Loewenstein, but not too technical and an interested lay reader should find most of it very accessible. So far the most important message is this. Traditional microeconomics derives from preferences based on consumption utility ; which is certainly an important component of total utility, but by no means all of it. Philosophy, psychology and behavioural experiments all indicate that people gain much, maybe most, of their motivation from things other than consumption. The first article is about mountaineering and the - definitely exotic - preferences of top mountaineers and polar explorers, who push themselves way beyond the limits of action that could plausibly be rationalised by consumption utility. Loewenstein gives four key examples of non-consumption utility: s...