Desire isn’t what it used to be.
Recent research [*] has found that the neural circuits related to “wanting” are different from those for “liking”. In other words, the regions, processes, and pathways in our brains involved with wanting things are not the same of those related to actually enjoying them.
This potentially has big implications in economics. Much economic theory is predicated on the idea that people most want what they will most enjoy. If humans err when choosing what to buy — if they consistently desire things that they won’t actually like — that would undermine this basic economic premise.
We already know of many instances where humans – or at least many humans – make consistently biased decisions. People tend save too little for the future and later regret it. People tend to charge much more than they can afford to on credit cards, causing them long-term financial and personal problems. People with various forms of addiction cannot help themselves from gambling, or consuming dangerous drugs and alcohol.
In fact, the list of situations and circumstances in which humans intentionally take actions that will make themselves worse off is long and growing. It’s to the point where it’s hard to defend the assumption that people normally act rationally.
In other words, it’s getting easier to argue that individuals’ well-being often could be improved through the right type of government involvement in certain markets.
We’ve know this for some time, of course. The U.S. started the Social Security program in 1935. This wasn’t based on some grand theory of human economic behavior; they simply wanted older Americans to have enough to live on. Since then research in behavioral economics and psychology has found that humans tend to not save enough for the future. We’ve even identified neural circuits that are responsible for this failure. Research has justified the need for Social Security.
None of this can justify unlimited government interference in the economy, of course. This isn’t a blank check for the well-intended policy. Government involvement in any market always has a cost in terms of efficiency, and invariably has unintended and unanticipated effects.
But the more we learn about human behavior and the human brain, the clearer it is that humans are not the perfectly rational and sensible beings that economists once believed they were. And the more it opens up the potential that the right type of government incentives and policies in the right areas could make people better off than they would otherwise be.
[*] Kringlebach and Berridge, “The Joyful Mind” in Scientific American, August 2012. Click here to view graphic from article.