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Source link: http://archive.mises.org/7770/does-neuroscience-support-austrian-theory/

Does Neuroscience Support Austrian Theory?

February 13, 2008 by

While the rational-expectations school attempts to explain away market bubbles and the ensuing crashes, the Austrian School, which formerly stood alone in providing a compelling explanation for these market phenomena, now has help from the neuroscience community, writes Doug French.

In his book Why Choose This Book? Read Montague takes us inside the brain to understand how we make decisions. Montague is no economist. Neuroscience is his beat. Why Choose uses computational neuroscience, an extension of evolutionary biology that studies the actual information processing supported by our brains, to try to figure just why humans act the way they act.

The work of neuroscientists Montague and Lohrenz indicates that regret, “the counterfactual learning signal, was a powerful determinate in the betting decisions that created [subject] losses while playing against the 1929 market.”

“In fact,” Montague writes, “as cultural and financial historians run that period through various analyses, regret about a host of decisions, individual and institutional, permeates every one.” FULL ARTICLE


newson February 13, 2008 at 7:29 pm

a large part of technical analysis in speculative markets is based around support/resistance levels, which in turn reflect emotional attachment to prices already paid (ie spilt milk).

“averaging down” is a classic investment error coming from this all-too-human trait – investors will make new, losing investments to justify their original (flawed) decision. it’s a truism that investors cut their profits and run their losses, and that to do the opposite runs counter to human nature. it’s not the mind that sinks the average punter, but the heart.

as i said in another post, it’s like the br’er rabbit and the tar baby. the fact that even children can relate to this, would seem to give credence to the neuroscience view of remorse.

Mike D. February 13, 2008 at 11:19 pm

What is amazing was is Mises, with the insight of a genius, was able to arrive at the correct answers 80 years ago, without the help of a functional MRI.

One minor point wrt to the article. Mises is very careful to associate Human Action with the mind as opposed to the brain
In the referenced article, the researchers use the term brain and mind interchangeably. This is clearly not the case – one can not put tissue from the ventral putamen into a test tube and tell it to act regretful!
Any emotion, experienced by humans in the mind, is a response to activity of several regions of the brain at (approximately) the same time. This is a fascinating line of research. Google Daniel Siegel to find a good set of reference material on neuropsychology.

david C February 14, 2008 at 12:49 am

thew coincidence here is remarkable – just the other day I passed a comment in response to the earticle ‘economics teaches us not to fret’ and mentioned a book on neuro and evolutionary economics by Michael Shermer ( ‘the mind of the market’) which leans heavily towards Austrian thinking.

48 hours later, heres an article making the same point about a different book!

Ill say it again – Shermer’s new book too deserves a full review and critique from Mises.org.

Vichy May 30, 2009 at 4:10 pm

“In the referenced article, the researchers use the term brain and mind interchangeably. This is clearly not the case – one can not put tissue from the ventral putamen into a test tube and tell it to act regretful!”
This is a strawman, anyway. And the notion that there could be anything to anything aside from the physical materia that makes it up is literally nonsensical. How would it exert any influence? In what sense would it ‘exist’? I think if you explore neuroscience you’ll find that much of what we know about the brain corresponds to a realistic assessment of our consciousness (‘mind’). Which is to say – all we are is a constantly shifting, but recursively coherent, pattern of patterns.

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