MIND READING

Flat on my back, my eyes shrouded with LED goggles and my ears encased in headphones, I was trundled into the maw of an fMRI machine in a basement lab at the California Institute of Technology. The business end of an fMRI is a giant cylindrical magnet, similar to the MRI machines doctors use to diagnose tumors, but with the added ability to show changes in brain activity as they happen--hence the "f," which stands for "functional." In the magnet's powerful field, blood sloshing back and forth inside my head reveals its presence control room next door are Steven Quartz, a Caltech neuroscientist, and Colin Camerer, an economist, who are looking inside my brain to help understand some of the most vexing problems in postmodern society--irrational market bubbles, intractable Third World poverty and loser brothers-in-law who want to borrow $5,000 to open a franchised back-rub parlor. My brain was helping science explain why, despite centuries of progress in economic theory since Adam Smith, actual human beings so often refuse to behave as equations say they should.

For all its intellectual power and its empirical success as a creator of wealth, free-market economics rests on a fallacy, which economists have politely agreed among themselves to overlook. This is the belief that people apply rational calculations to economic decisions, ruling their lives by economic models. Of course, economists know that the world doesn't actually work this way; if it did, you wouldn't need Jane Bryant Quinn to remind people once a month to save for retirement. But until recently the anomalies were chalked up to the pernicious influence of emotions, emanations from the primitive regions of the brain, a kind of mental noise interfering with the pure, rational expression of economic self-interest. The new paradigm sweeping the field, under the rubric of "behavioral economics," holds that studying what people actually do is at least as valuable as deriving equations for what they should do. And when you look at human behavior, you discover, as Camerer and his collaborator George Loewenstein of Carnegie Mellon have written, that "the Platonic metaphor of the mind as a charioteer driving twin horses of reason and emotion is on the right track--except that cognition is a smart pony, and emotion a big elephant." The fMRI machine enables researchers in the emerging field of neuroeconomics to investigate the interplay of fear, anger, greed and altruism that are activated each time we touch that most intimate of our possessions, our wallets.

Economists have many ways of demonstrating the irrationality of their favorite experimental animal, Homo sapiens. One is the "ultimatum game," which involves two subjects--researchers generally recruit undergraduates, but if you're doing this at home, feel free to use your own kids. Subject A gets 10 dollar bills. He can choose to give any number of them to subject B, who can accept or reject the offer. If she accepts, they split the money as A proposed; if she rejects A's offer, both get nothing. As predicted by the theories of mathematician John Nash (subject of the movie "A Beautiful Mind"), A makes the most money by offering one dollar to B, keeping nine for himself, and B should accept it, because one dollar is better than none.

But if you ignore the equations and focus on how people actually behave, you see some-thing different, says Jonathan D. Cohen, director of the Center for the Study of Brain, Mind and Behavior at Princeton. People playing B who receive only one or two dollars overwhelmingly reject the offer. Economists have no better explanation than simple spite over feeling shortchanged. This becomes clear when people play the same game against a computer. They tend to accept whatever they're offered, because why feel insulted by a machine? By the same token, most normal people playing A offer something close to an even split, averaging about $4. The only category of people who consistently play as game theory dictates, offering the minimum possible amount, are those who don't take into account the feelings of the other player. They are autistics.

The fMRI machine shows how all this works inside the brain. A low offer stimulates activity in the brain's insular cortex, a relatively primitive region associated with negative emotions including anger and disgust. This appears to compete with the more highly evolved prefrontal cortex, the locus of the rational impulse to take the dollar and go buy a soda with it. The more activity in the insular cortex, the more likely subjects were to reject the offer. This is a big step toward being able to see on a screen what people actually want, rather than what they say in focus groups or interviews. Would brain-scan-assisted matchmaking or employee headhunting be more efficient than the way these have been carried out until now? Or would the fMRI merely ratify the judgments of intuition? Psychologists can hardly wait to find out.

And for their part, economists can hardly contain their glee at the research horizons this opens up. "Imagine if you could go on the floor of the stock exchange and see what was going on in traders' brains," says Camerer. "We kept hearing during the bubble that people were behaving as if they were in a delusional state. Well, were they or weren't they?" People don't save enough for their retirements because of a phenomenon known as forward discounting: they value money more in the here and now than 20 years down the road. If we could understand how this process works in the brain, says Paul Glimcher, a leading neuroscientist at New York University, we would have a head start on figuring out how to overcome it. Much of Glimcher's work is with monkeys, which can be implanted (safely and painlessly, he stresses) with electrodes that can detect in real time the firing of a single neuron. By contrast, the fMRI only indirectly tracks brain function by measuring blood flow. This is an im-precise indicator both spatially--it deals with regions of hundreds of thousands of neurons--and temporally, since it lags several seconds behind the neural activity it reflects. Monkeys, obviously, don't save for their retirements, and you couldn't expect them to grasp the rules of the ultimatum game. But they do have a rudimentary concept of economic choice, and researchers have discovered a medium of exchange--Berry Berry fruit drink--that can usefully stand in for money in a monkey's mental life. To illustrate how monkeys make economic decisions, Glimcher's former colleague Michael Platt, now at Duke, has investigated how they value status within their troop. Male monkeys have a distinct dominance hierarchy, and Platt has found they will give up a considerable quantity of fruit juice for the chance just to look at a picture of a higher-ranking individual. This is consistent with field observations, Platt says, which have found that social primates spend a lot of time just keeping track of the highest-ranking troop member. It isn't known exactly why monkeys do this, but the finding might help explain the behavior of human beings who pay $1,000 just to sit in a hotel ballroom with the president. You can draw whatever conclusion you choose from Platt's finding that there is no quantity of juice sufficient to get a male monkey to look away from the hindquarters of a female in estrus.