On November 12th, 2017 we learned about

The brain activity that can lead to seemingly irrational cost comparisons

In the book Predictably Irrational, behavioral economist Dan Ariely points out numerous scenarios where people reliably make illogical choices related to money or other measurements of value. For example, most of us would stop to consider spending an additional 75 cents to get a pen with a one dollar notebook, but wouldn’t blink before spending an extra ten dollars for an unnecessary drawstring bag to go with a five-hundred dollar phone. On the surface, closely scrutinizing the cheaper pen while not thinking about the more expensive bag makes no sense, apparently stemming from a weird quirk of the human brain that leads to weird allocations of resources and exploitation by marketers. Neuroscientists have dug a bit deeper though, revealing the benefit of this seemingly illogical thought pattern.

From an economics standpoint, this truly is illogical behavior. In theory, we’d be better served if we scrutinized our purchases based on their individual costs, and how much value they might provide. The cost of other purchases shouldn’t matter, unless we’re trying to build a budget. Our brains obviously don’t work this way though, and seem to decide if something is affordable or costly based on the costs of related purchases, which can of course throw off our sense of economic perspective.

Monkeys judging juices

For better or for worse, this kind of thinking has been built into primates for a long time. Monkeys picking between apple and grape juice had their brain activity monitored to figure out exactly what happens in our brain when we’re making a decisions like this. When something desirable is being considered, sets of neurons in the orbitofrontal cortex start firing faster and faster. So when a monkey was choosing between apple and grape juice, it’s neurons worked faster when concentrating on the apple juice. When the portions of each juice were shifted, such as a smaller cup of apple juice or a larger cup of grape juice, the neurons adjusted their firing rates, seemingly weighing the pros and cons of either choice.

The catch is that these neurons can only fire so many times a second. If a cup of apple juice is more exciting than a cup of grape, you might see one group firing 500 times per second. When looking at 10 cups of apple juice to one cup of grape juice, it’s a significantly more attractive offer for the monkey, but those cells can still only fire 500 times a second. Since brains can’t scale their response to every value proposition, the scale has to be adjusted constantly. For choices that are close in value, this 0-500 scale can be fairly fine-grained and precise. On the other hand, when comparing choices with a big gap in values, like a bag and a phone, the scale is sort of maxed-out, and the comparisons have to be more like crude estimations rather than careful evaluations.

Sliding scales help preserve our preferences

The upside of all this is that quantity doesn’t always drown out quality. In the case of the monkeys, huge portions of less desirable grape juice never completely eclipsed the monkey’s preference for apple juice. The neurons couldn’t make the most nuanced decisions in those circumstances, but the apple juice always held some value in the monkey’s mind. Assuming monkeys like the apple juice for a healthy reason, this system can ensure that they, and by extension we, don’t end up ignoring options that really matter to us, even if they’re less abundant. It may not be the calculation an economist would come up with on paper, but this neurological circuit can truly work in our favor, allowing for some unnecessary accessories along the way.

Source: Penny-Wise, Pound-Foolish Decisions Explained By Neurons’ Firing, Scienmag