Hot topics

So how do you think about hot topics? .. and what is a hot topic? A headline in yesterday’s Montreal Gazette suggested Brain scans show link between lust for sex, money. That’s from an article by Adam Levy in Bloomberg News. It’s all about a new field called neurofinance. Brian Knutson, a professor at Stanford University is the creator of neurofinance. Based on work with students, Knutson believes the same neural network governs the pleasure of orgasm, or of getting high on cocaine or in buying some booming stock like Google. These primal pleasure circuits in our brain will override the brain’s frontal cortex, where we use logic and reason to make decisions.

This seems heretical and quite counter to the rational expectations theory put forward by the 1995 Nobel Economics Prize winner, Robert Lucas of the University of Chicago. His view is that people make economic choices based on all the information available to them and learn from their mistakes. After all isn’t that what economics is all about. Economics has been dubbed the dismal science. Hot shares and lust just don’t seem appropriate economic terms.

Well perhaps economics is evolving. Knutson’s work may link in with a later Nobel Economics Prize winner. In 2002, Daniel Kahneman shared the Prize for his work on integrating psychological research into economic science. His work is involved with human judgment and decision-making under uncertainty.

He has demonstrated how human decisions may systematically depart from those predicted by standard economic theory. Together with Amos Tversky (deceased in 1996), he has formulated prospect theory as an alternative, that better accounts for observed behavior. Kahneman suggests that human judgment may take heuristic shortcuts that systematically depart from basic principles of probability. His work has inspired a new generation of researchers in economics and finance to enrich economic theory using insights from cognitive psychology into intrinsic human motivation.

So perhaps Knutson with his insights on hot topics such as lust and pleasure centres is just following in Kahneman’s footsteps. Perhaps some year we’ll be seeing the word lust in a citation for a Nobel Economics Prize. That dismal science tag really must go.

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