Neuroeconomic Theory Methodology 

Neuroeconomic Theory leverages advancements in brain activity measurement techniques to simultaneous model choices and the underlying neural mechanisms. This innovative approach eliminates the need  to speculator about how to model preferences, beliefs or cognitive limitations to align with observed behavior.

Limits of classical micro theory

Modern microeconomics makes unreasonable assumptions on how people make choices

The rational paradigm

Modern microeconomics is based on Decision Theory and Game Theory. Decision Theory defines axioms that govern individual decision-making and provides (sometimes unique) utility representations that satisfy those axioms. Game Theory characterizes equilibrium concepts that govern strategic interactions between players endowed with these utility functions. Among all axioms and equilibrium concepts, the most standard way of modeling economic agents is to rely on the so-called rational paradigm, an approach that imposes extreme sophistication on individuals (such as perfect memory, perfect capacity to process information, perfect anticipation of others behavior or stable preferences, etc.)

Using non-choice data to inform models

Up to recently, researchers have only been able to observe choices, so theories of decision-making limited themselves to drawing inferences from those choices. However, when the rational paradigm does not hold, there is not a one-to-one mapping between motivations and behavior. Therefore, behavior can result from a wide array of context-dependent motivations and limitations imposed on processing. Abstracting from these causes prevents understanding the reasons for commonalities and differences across economic decisions and leads to speculation about the true motivations of people.

Neuroeconomic Theory

Understanding processes that underlie choices is critical for understanding and predicting behavior

Behavioral economics and decision theory

Decision theory and behavioral economics build models that fit behavior

Recognizing limits of rationality

Experimental Economics demonstrates that predictions made under the rational paradigm are often difficult to reconcile with observed behavior. In the last decades, both Decision Theory and Game Theory have started refining theories. New axioms (such as uncertainty aversion or set-betweennes) and new concepts to model strategic interactions (such as quantal response equilibrium or cognitive hierarchy) have been devised to account for unexplained phenomena. Behavioral Economics also provides new useful models of decision-making based on findings in Psychology. Still, those approaches build models that fit behavior and speculate about potential processes rather than modeling them.