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