Community Research and Development Information Service - CORDIS

New model improves our understanding of emotional economic interactions

In-depth studies in behavioural economics to support economic decisions and policies are lacking. A new mathematical model promises to address these limitations.
New model improves our understanding of emotional economic interactions
The discipline of behavioural economics plays an increasingly important role in understanding and managing our economy. For example, understanding distributional concerns (caring about wealth distribution of others) can reveal why people buy goods to enhance their social standing. Similarly, placing preferences over beliefs (considering what others believe about you) can affect economic interactions between people. This involves feelings such as guilt or jealousy which may arise when someone has different beliefs from others. It is a phenomenon often encountered in the workplace.

Against this backdrop the EU-funded NEUROCHOICE (Neural Mechanisms of Emotional Economic Interactions) project developed a mathematical model of social preferences and preferences over beliefs. Using a multidisciplinary approach, it used relevant information from fields such as anthropology, economics and evolutionary psychology. The project also validated the model to ensure it can accurately calculate the relative strength of people’s preferences over the beliefs of others about them.

While some studies reveal how interactions between economic agents are influenced by the beliefs of others and others’ intentions, economists do not have a solid framework to study the topic in depth. The project extended tools for applied economists and policymakers to investigate how people possess certain preferences over beliefs of others. It developed methodology to support future researchers in validating hypotheses related to the preferences over beliefs and intentions.

The model successfully outlined the concept of preferences over beliefs, facilitating the predication of behaviour in simulated situations. This improves over current models which rely on more fluid assumptions on the behaviour of people. Tests conducted using the new model have also revealed a strong tendency in people to act upon their hypotheses about the beliefs of other players. These results were achieved using game theory, ultimately enabling social scientists and policy makers to better predict certain types of economic behaviour and articulate better policies that support the economy.

Examples where the model could be used include designing better industrial contracts, understanding interactions between political parties, and improving voluntary cooperation. It can also be used to support developing economies where economic transactions are highly influenced by traditional societal relationships instead of the free market. Thanks to this model, behavioural economics and emotionally-driven economic interactions will become easier to predict and manage.

Related information


Behavioural economics, distributional concerns, preferences over beliefs, social preferences
Record Number: 180932 / Last updated on: 2016-03-30
Domain: Industrial Technologies