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From perception to action: An economic model of brain processes

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  • Brocas, Isabelle
  • Carrillo, Juan D.
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    Abstract

    We build on research from neurobiology to model the process through which the brain maps outside evidence into decisions. The sensory system encodes information through cell-firing. Cell-firing is measured against a threshold, and an action is triggered depending on whether the threshold is surpassed. The decision system modulates the threshold. We show that the (constrained) optimal threshold is set in a way that existing beliefs are likely to be confirmed. We then derive behavioral implications. Our mechanism can explain in a unified framework a number of ‘anomalies’ noted in psychology and economics: (i) belief anchoring (the order in which evidence is received affects beliefs and choices); (ii) polarization (individuals with opposite priors may polarize their opinions after receiving identical evidence); (iii) payoff-dependence of beliefs and (iv) belief disagreement (individuals with identical priors who receive the same evidence may end up with different posterior beliefs).

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    Bibliographic Info

    Article provided by Elsevier in its journal Games and Economic Behavior.

    Volume (Year): 75 (2012)
    Issue (Month): 1 ()
    Pages: 81-103

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    Handle: RePEc:eee:gamebe:v:75:y:2012:i:1:p:81-103

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    Web page: http://www.elsevier.com/locate/inca/622836

    Related research

    Keywords: Neuroeconomic theory; Information processing; Bayesian updating;

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    References

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    1. Raaj Kumar Sah & Joseph E. Stiglitz, 1984. "The Architecture of Economic Systems: Hierarchies and Polyarchies," NBER Working Papers 1334, National Bureau of Economic Research, Inc.
    2. Fryer Roland & Jackson Matthew O., 2008. "A Categorical Model of Cognition and Biased Decision Making," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-44, February.
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    8. Isabelle Brocas & Juan D. Carrillo, 2008. "Theories of the Mind," American Economic Review, American Economic Association, vol. 98(2), pages 175-80, May.
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    12. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
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    Cited by:
    1. Gonzalo Valdés-Edwards & Salvador Valdés-Prieto, 2013. "A Tractable Theory of Choice Based on Cell Behavior," CESifo Working Paper Series 4424, CESifo Group Munich.

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