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T I M E
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B U S I N E S S / T E C H N O L O G Y
The Why of Buy
Theory
says we are rational about money. But brain-probing scientists are
discovering otherwise
By ERIC ROSTON
Monday, Mar. 08, 2004
"Stephen" is
trying to win a casino bet. It's not a big one by any measure but a
gamble all the same. Here's his play. The house is willing to give
him $5 — risk free — just to fold. Or he can bet even odds on red
and win $15. A blue ball packs him off empty-handed. Stephen
swallows, forgoes the sure thing and bets red. A red gumball drops:
he's $15 richer.
Stephen is not in Vegas. He's watching a video monitor in Paul
Glimcher's neural-science lab at New York University. And his head
is plugged into a high-powered Siemens functional magnetic resonance
imaging scanner (fMRI). His name is not actually Stephen; he's a
composite research subject. Glimcher is at the frontal lobe of an
intriguing network of brain researchers and economists who are using
advanced medical technology to try to figure out why people make the
decisions they do — what brand of cereal, which mutual fund — and
what part of the brain tells them to do so. "We're much further
along with monkeys because we can use [implanted] electrodes and
measure single neurons," Glimcher says. In experiments, computer
data will tell him what a monkey is going to do seconds before the
creature does it. Human see, monkey do.
Pioneer "neuroeconomists" around the country are ready to knock
out the centuries-old model of Homo economicus, or "economic man,"
the perfectly reasonable, largely imaginary being who day in and day
out maximizes his utility and gains and always clearly seeks the
right thing to do. It's the foundation for Wall Street's "efficient
market," which holds that every trade neatly reflects all available
information. In theory, the saying goes, practice and theory are the
same. But in practice, they are different.
The trouble with Homo economicus is that he has really very
little to do with his emotional, dim-witted half brother Homo
sapiens, who bought Petsmart.com on a hunch. It's difficult to imagine
Homo economicus upset and off to the mall for some "retail therapy."
He doesn't make impulse buys. And he doesn't always know or care
what he wants, let alone what he can afford. "The bursting of the
Internet bubble may have been the final nail in the coffin of the
efficient-market hypothesis," says Richard Thaler, a professor at
the University of Chicago.
Research from fMRIs and other machines bears all this out. Gerald
Zaltman, a professor at Harvard University, says 95% of consumer
decision making occurs subconsciously. Read Montague, a professor at
the Baylor College of Medicine, gave subjects the "Pepsi Challenge"
in an fMRI scanner. Result: people found Pepsi more pleasing to the
palate — their reward center lit up — but Coke's branding hit
literally at the core of their sense of self, a much stronger bond.
This affirms what we all suspected: brands are so powerful that we
are sometimes more likely to buy something we identify with than
something we like better or that is better for us.
The researchers are also finding that money makes us nutty. We
should treat money as a mere exchange mechanism that allows us to
get stuff. That distinction is lost on our brains. The dopamine
release that makes a juicy hamburger so satisfying works the same
magic even if we simply find the money to buy the burger.
There's not much profit yet in neuroeconomics' eyebrow-raising
sidekick — neuromarketing — but that might not be far behind. In
Atlanta, the BrightHouse Neurostrategies Group has been retained by
Coca-Cola, Delta and Red Lobster for branding consultancy work.
Glimcher says while he can't peer inside a human's brain as he
can a monkey's, "stuff like that is rapidly becoming possible."
Certainly we'd torture ourselves much less over a potential impulse
buy if we could just know in advance whether we were going to like
it or not.
HOMO ECONOMICUS has little to do with his half brother Homo
sapiens
From the Mar. 08,
2004 issue of TIME magazine
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