Decision-Making in Economics: Critical Lessons from Neurobiology

In this chapter, the authors consider some of the issues regarding the rational choice decision framework in neoclassical economics and how it can particularly be found wanting in the absence of due consideration for some of the underlying critical neurobiological factors which govern decision making. They develop a critical decision problem and explore the scenario where the solution predicted by formal economic theory may be in conflict with the decision that actually occurs. Such conflict is especially relevant in the context of economic decision making in emerging markets where there can be a lack of trust in the system by the agents operating within it. Based on logically consistent arguments derived from the extant literature, the authors argue that non-consideration of underlying neurobiological factors is a direct cause of this conflict.