Business Report

Predicting Consumer Choices with Neuroeconomics

Brain imaging gives insights into how people make decisions, including what they want to buy.

Fatigued holiday shoppers wandering the malls would probably love to have a better way to figure out which book or toy to give to a friend or family member this Christmas. Now neuroscientists are working on just that problem, using brain imaging technology to try to predict which of a range of products an individual will prefer. Although the findings won’t inform holiday shopping this season, scientists say the research could aid in product development and yield new understanding of how such choices are made.

“We want to find out if there’s something going on in people’s brains that forecasts whether they will buy an item or not, particularly for stuff people say they are excited about but then don’t buy when they get to the store,” says Colin Camerer, a professor of behavioral economics at Caltech.

Camerer is one of a number of experts who have brought together brain imaging and economic modeling to establish the discipline of neuroeconomics, which is already beginning to shed light on the intricacies of how people decide many things, including what to buy. “I think it will really open up the biology of human choice,” says Read Montague, a neuroscientist at Virginia Tech and University College London.

Brain imaging studies performed while people gamble and play other kinds of games have helped scientists identify the regions involved in these tasks. They include parts of the prefrontal cortex, an area involved in planning complex cognitive behaviors, and the striatum, an area deep in the brain that receives information from many other regions. “The question is, how do you go from [knowing which brain areas to look at] to predicting behavior?” says Kenway Louie, a postdoctoral researcher at New York University.

Louie and others in Paul Glimcher’s lab at New York University are tackling that question. In one experiment soon to be published in the Journal of Neuroscience, researchers showed volunteers sitting in a magnetic resonance imaging (MRI) scanner a selection of books, DVDs, and posters and asked them to rate how much the items would be worth to them. The scientists recorded the subjects’ brain activity as they thought about these values. The same subjects then ranked the entire list of items.

The researchers found that the parts of the prefrontal cortex and the striatum that are involved in game playing were most active when people looked at items they valued most highly. To see if they could actually predict which of two items an individual preferred, researchers compared brain activity for pairs of objects. They found that for items with large differences in ranked value, looking at the brain scans allowed them to predict which item an individual would pick with about 80 percent accuracy.

Researchers hope ultimately to discover the difference between what people say and what their brain activity shows. “For new products that people don’t have much experience with, maybe the brain has more intuition about whether they would try it than what comes out of their mouths,” adds Camerer. “This discrepancy may help explain why many new products fail, even when focus groups are enthusiastic about them.”

These types of insights might be particularly beneficial for products such as gym memberships or diet regimens, which people are likely to overestimate their interest in. “People often say that they plan to exercise more or east less, but whether they will follow through is another issue. There is probably something going on in the brain that predicts whether they really will,” Camerer says.

Still, neuroeconomists have a way to go before they can harness these techniques to help retailers and product developers. “It’s not clear to me that killer app is there yet,” says Russell Poldrack, director of the Imaging Research Center at the University of Texas at Austin. “The predictions you can make are significantly above chance, but in most domains, you can’t predict 100 percent of what people will do.”

Thus far, most neuroeconomic research has focused on understanding the choice between a potentially more rewarding but risky option and a less rewarding but more conservative one. According to Louie, the brain needs three basic modules to calculate choices: “an area that learns value based on past experience, an area that stores values, and a system that compares and selects the best option.”

Researchers are also trying to better understand how someone else’s behavior influences the decisions a person makes, a factor that may affect decisions across commercial markets. Humans appear to be instinctively driven by other people’s decisions, perhaps as a substitute for adequate information or confidence of their own. “Think of the person in the next cubicle who invested in Oracle,” says Montague. “You may have decided that investment was too risky, but you start to think twice after hearing his choice.”

In one ongoing study in Montague’s lab, researchers ask volunteers to make a hypothetical investment based on a given set of market information. They are then told what a second volunteer chose after being given the same set of information. The researchers observe how this influences both the decisions that people make and the way their brains behave. “What couples two brains together? Are there different types of people—those who are sensitive to these influences and those who are not?” asks Montague. With brain imaging, “you can eavesdrop and find variables you wouldn’t have found otherwise.”

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Predictive Modeling

More and more companies are using sophisticated software to model future behavior and probabilities in their industries; applications range from disaster prevention to change management to anticipating the impact of economic trends to forecasting customer churn. We’ll explore how companies are employing software tools including data mining, business analytics, and neural networks to anticipate everything from this afternoon’s network traffic to potential crashes of communications satellites.

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