Traditional economics has relied (mostly) on revealed preferences and (sometimes) on verbal reports to understand the desires of individuals and predict their actions. Neuroeconomics adds a third method, the direct observation of the underlying mechanisms leading to choices. Neuroeconomic Theory makes one extra step. It uses the evidence on brain activity to build models that can explain and predict observed behaviors. There are three major advantages in approaching economic decision-making from a Neuroeconomic Theory angle.
First, bounded rationality can be modeled in a countless number of ways. This methodology provides precise guidelines vis-à-vis the constraints that should be imposed in the decision-making processes. As an illustrative example, the neurobiology evidence regarding the properties of neuronal cell firing that transform sensory perceptions into voluntary actions puts sharp restrictions on how to model the imperfect ability of individuals to process information.
Second, by explicitly modeling the strategic interaction between distinct brain systems, it is possible to provide microfoundations for some aspects of preferences traditionally considered exogenous. For example, discounting endogenously emerges from the conflict between two brain systems, one interested exclusively in immediate gratification and one that can form a mental representation of future rewards. This approach can, in turn, rationalize finer aspects of time preferences, like decreasing impatience.
Third, theoretical brain models provide new testable implications about the functionality of brain systems and their relative importance in different aspects of the choice process (such as storage, processing and retrieval of information or determination, evaluation and selection of alternatives). Consequently, this methodology opens up new directions of experimental investigation in neuroscience that can be of interest for economic decision-making.