NEOCLASSICAL economics is built on the assumption that humans are rational beings who have a clear idea of their best interests and strive to extract maximum benefit (or “utility”, in economist-speak) from any situation. In this account, price is a signal that helps you decide the combination of work, spending and saving that suits you best. Neoclassical economics assumes that the process of decision-making is rational. But that contradicts growing evidence that decision-making draws on the emotions—even when reason is clearly involved.

The role of emotions in decisions makes perfect sense. For situations met frequently in the past, such as obtaining food and mates, and confronting or fleeing from threats, the neural mechanisms required to weigh up the pros and cons will have been honed by evolution to produce an optimal outcome. Since emotion is the mechanism by which animals are prodded towards such outcomes, evolutionary and economic theory predict the same practical consequences for utility in these cases. But does this still apply when the ancestral machinery has to respond to the stimuli of urban modernity?

One of the people who thinks that it does not is George Loewenstein, an economist at Carnegie Mellon University, in Pittsburgh. In particular, he suspects that modern shopping has subverted the decision-making machinery in a way that encourages people to run up debt. To prove the point he has teamed up with two psychologists, Brian Knutson of Stanford University and Drazen Prelec of the Massachusetts Institute of Technology, to look at what happens in the brain when it is deciding what to buy.

Discounting the future

In a study just published in Neuron, the three researchers asked 26 volunteers to decide whether to buy a series of products such as a box of Godiva chocolates or a DVD of the television show “Sex and the City” that were flashed on a computer screen one after another. In each round of the task, the researchers first presented the product and then its price, with each step lasting four seconds. In the final stage, which also lasted four seconds, they asked the volunteers to make up their minds. To make the task more realistic, two randomly selected sales were real—paid for out of a $40 credit from which the volunteer got to keep the change, as well.

While the volunteers were taking part in the experiment, the researchers scanned their brains using a technique called functional magnetic resonance imaging (fMRI). This measures blood flow and oxygen consumption in the brain, as an indication of its activity.

The researchers found that different parts of the brain were involved at different stages of the test. The nucleus accumbens—known from previous experiments to be involved in processing rewarding stimuli such as food, recreational drugs and monetary gain, as well as in the anticipation of those rewards—was the most active part when a product was being displayed. Moreover, the level of its activity correlated with the reported desirability of the product in question.

When the price appeared, however, fMRI reported more activity in other parts of the brain. Excessively high prices increased activity in the insular cortex, a brain region linked to expectations of pain, monetary loss and the viewing of upsetting pictures. The researchers also found greater activity in this region of the brain when the subject decided not to purchase an item.

Price information activated the medial prefrontal cortex, too. This part of the brain is involved in rational calculation, and is known from previous experiments using trading games to be involved in balancing the expected and actual outcomes of monetary decisions. In this experiment its activity seemed to correlate with a volunteer's reaction to both product and price, rather than to price alone. Thus, the sense of a good bargain evoked higher activity levels in the medial prefrontal cortex, and this often preceded a decision to buy.

People's shopping behaviour therefore seems to have piggy-backed on old neural circuits evolved for anticipation of reward and the avoidance of hazards. What Dr Loewenstein found interesting was the separation of the assessment of the product (which seems to be associated with the nucleus accumbens) from the assessment of its price (associated with the insular cortex), even though the two are then synthesised in the prefrontal cortex. His hypothesis is that rather than weighing the present good against future alternatives, as orthodox economics suggests happens, people actually balance the immediate pleasure of the prospective possession of a product with the immediate pain of paying for it.

That makes perfect sense as an evolved mechanism for trading. If one useful object is being traded for another (or, in the modern context, for hard cash), the future utility of what is being given up is embedded in the object being traded. Emotion is as capable of assigning such a value as reason. Buying on credit, though, may be different. The abstract nature of credit cards, coupled with the deferment of payment that they promise, may modulate the “con” side of the calculation in favour of the “pro”.

Whether it actually does so will be the subject of further experiments that the three researchers are now designing. These will test whether people with distinctly different spending behaviour, such as miserliness and extravagance, experience different amounts of pain (or, at least, show different patterns of brain activity) in response to prices. They will also assess whether, in the same individuals, buying with credit cards eases the pain compared with paying by cash. If they find that it does, then credit cards may have to join the list of things such as fatty and sugary foods, and recreational drugs, that subvert human instincts in ways that seem pleasurable at the time but can have a long and malign aftertaste.