New findings in brain physiology, especially evolutionary neuroscience, have profound implications for behavioral economics. The new findings show that the transactional commercial market evolved from the interplay of our self-preservational (egoistic) and affectional (empathetic) neural circuitries. These fundamental brain circuitries, under homeostatic physiological regulation, are the neural substrate of our human social exchange activity—from sharing in primitive families to the gift exchange economy to the commercial market. Current microeconomic theory is structured on the assumption of a sole primary self-interest motive. The presence of the dual physiological motives, however, is clearly demonstrated in demand, supply, and equilibrium curves as well as in the basic calculus of price theory. This confirmed duality of motives opens the way for new and productive directions in research. The conflict systems neurobehavioral (CSN) model developed by the author in several recent publications expresses the reciprocal interactive dynamic of these circuitries in socio-economic exchange behavior.
The brain is a physiological organ. That is a fundamental fact of science. The gene-specified neural circuits or architecture constitute that fundamental physiology. And physiologically, the human brain is also a social brain. The emergence of the social brain concept, emphasizing both the self-preservational (self-interested) and affectional (other-interested) components necessary to social exchange, has been landmarked by the publication of two recent handbooks—Foundations in Social Neuroscience (Cacioppo et al., 2002) and Handbook of Affective Sciences (Davidson et al., 2003)(see also, Cory and Gardner, 2002 and Wilson, 2004). Earlier, but still recent volumes included Descartes’ Error: Emotion, Reason, and the Human Brain (Damasio, 1994), The Integrative Neurobiology of Affiliation (Carter et al., 1997) and Affective Neuroscience (Panksepp, 1998). The author's The Reciprocal Modular Brain in Economics and Politics (1999) and The Consilient Brain: The Bioneurological Basis of Economics, Society, and Politics (2004) represent efforts to tie these new findings graphically, algorithmically, and mathematically to behavioral economics. Recent years have thus brought great advances in detailing the many complex and interrelated pathways of brain's interactive social circuitry.
The social circuitry was forged over millions of years of evolutionary history in small kinship groups, which required a cooperative interactive dynamic for survival. These dynamic social circuits motivate human social interaction and social exchange at all levels of our lives today. Like many other physiological processes – for example, blood pressure, body temperature, glucose level – that mediate between our internal and external environments, these social circuits are homeostatically regulated (see, Herbert and Schulkin, 2002 and Bloom et al., 2001, pp. 167–206; Kandel et al., 2000, pp. 871–997; Nelson, 2000, pp. 447–494; Lapeyre and Lledo, 1994, Becker et al., 1992 and Cannon, 1932). In fact, the broader term allostatic, which means adaptive, perhaps better describes the social circuitry's rather wide, variable, and modifiable set points and boundaries (see McEwen, 2003, McEwen and Seeman, 2003 and Sterling and Eyer, 1981).
In conclusion, the neural algorithms of our social brain function as competing or conflicting neural networks, both excitatory and mutually inhibitory, interacting with each other homeostatically within prescribed limits (see, Levine, 2004 and Levine and Jani, 2002 for a neural network model of the ego/empathy dynamic; cf. Leven, 1994). They are, thus, a physiologically (homeostatically)-regulated social mechanism—like numerous other bodily functions (e.g., blood pressure, blood sugar, body temperature). Their interactive dynamic generally assures that our social behavior stays within survival limits. At its optimum the dynamic tends toward equilibrium or dynamic balance, which promotes social harmony and cooperation. Over history the dynamic has worked successfully to achieve a human population of over six billion, creating, of course, new problems to be dealt with. In fact, one author has questioned whether the human species is a suicidal success (Tickell, 1993).
The interactive dynamic can be mapped on to mathematical operations or formulas identifiable with social stratification and inequality as well as the invisible hand of economic supply and demand. It is the convergence or divergence of the ratio that is of interest. As the ratio diverges from approximation to plus or minus one or unity, it serves to index the BT and stresses among ourselves and within our economic, social, and political structures. The equations expressing their dynamic interactions approaching equilibrium, unity, or dynamic balance as reflected in exchange and political economy are as follows:
Neuroscience:
The CSN model, emerging from evolved neural architecture, anchors behavioral economics, equilibrium theory, and market and free enterprise theory firmly in the physiology of neuroscience and supports the introduction of the moral component of empathy into the rational calculus of economics, free enterprise theory, and other social sciences. The model supports ongoing efforts to introduce cooperation and fairness, trust and morality into the neoclassical calculus and definitively counters the long-prevailing, inaccurate, and troubling self-interested bias of received microeconomic and traditional business theory. The CSN model provides the basis for a new research program to develop and test the hypotheses proceeding therefrom and to explore the potential implications for rethinking aspects of contemporary economic, business, and political policy. It is particularly applicable to the challenges of global trade and business which must be based on respect for self and others – the dynamic interplay of ego and empathy – if trade is to be conducted peacefully without the threat of military conflict.
