MIND READING

In the 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 a financial adviser to remind you 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 neuro-economics 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 something 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.