Information processing and decision-making: Evidence from the brain sciences and implications for economics

This article assesses the potential benefits of including findings from neurobiology in economic decision-making models. First, we emphasize that the evidence supports both ‘expected utility-like’ theory and ‘Bayesian-like’ information acquisition theory. Second, we explain that inferences and representations are subject to physiological limitations that affect decision making. We report in particular two ‘mechanical’ models developed in neuroscience to represent neural data and choices. We then propose two economic models that incorporate physiological limitations into an expected utility framework. Interestingly, these two models provide foundations for those developed in neuroscience (which emerge endogenously in our framework) and provide further predictions that can be tested in principle. This allows us to discuss the benefits of bringing together evidence from neuroscience and economic modeling.

► I assess the benefits of including findings from neurobiology in economic decision-making models.
► I emphasize that the evidence supports both ‘expected utility-like’ and ‘Bayesian-like’ theories.
► I propose two economic models that provide foundations for models developed in neuroscience.
► I discuss the benefits of bringing together evidence from neuroscience and economic modeling.