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Can Marginal Utility be Measured?

Reporting in the current issue of Neuron, the scientists reveal that when a small sum of money is on the line, poorer people learn quickly how to maximize their profits, leaving their wealthier counterparts in the dust.

In a Pavlovian paradigm, a number of abstract shapes flashed in front of 14 participants. After each shape appeared for three seconds, a picture of either a 20-pence coin (roughly 40 cents) or a scrambled image followed. A card of one particular shape was always followed by the coin, and subjects were told that they could take a 20-pence piece home if they could accurately predict when the money card was the next one up....

The poorer people tended to figure out which card signaled money ahead within about 12 trials... whereas the richer people took about 35 trials.

The team next repeated the experiment while the subject's brains were scanned by an fMRI (functional magnetic resonance imaging) machine. ...This time, however, the participants did not have to physically respond. "We didn't want them to do that because there are neurons in the striatum that are responding to initiate an action of responding to reward," Tobler says. It was this response preparation that the researchers timed.

Once again, an inverse association between wealth and learning appeared, with poor people displaying more increased activity in the midbrain and striatum when compared with the more affluent subjects.

From Scientific American, the article is here.

Thanks to Rey Lehmann for the pointer.

Posted by Alex Tabarrok on April 5, 2007 at 07:07 AM in Economics | Permalink

Comments

It kinda sounds to me like they're somehow trying to imply that rich people are stupid and undeserving of their money.

Posted by: David Peterson at Apr 5, 2007 10:15:35 AM

I guess utility is cardinal, rather than ordinal. Like, you know, Austrians go miles out of their way
to deny.

Posted by: Person at Apr 5, 2007 10:23:44 AM

Going with the post title, it indicates that the marginal utility of a few pence is rather small for the rich. I'm sure if the reward were bumped up to something noticeable for these guys (say $100), they'd be much better at this. They've got less of an incentive to figure out the game.

Posted by: meep at Apr 5, 2007 10:24:33 AM

Exactly; it's not that rich people are stupid, but merely that marginal utility of income is decreasing in income. I'd like to see this test done with a couple dozen different "prizes" (say 20 pence up to 20 pounds); we could surely derive a fairly good estimate of the average utility curve for income in the UK!

Posted by: cure at Apr 5, 2007 11:46:00 AM

Person: Not so. There is a utility cost of the effort required to figure out the game, and a utility benefit from the money earned. The comparison that the game participants make between these utilities is ordinal, not cardinal. Mises 1; You 0.

Posted by: Bastiat at Apr 5, 2007 11:48:18 AM

It's not clear to me whether the law of marginal utility is something that can be affirmed or contradicted by data alone. It seems that any set of behaviors can be not totally implausibly interpreted in line with the principle. This isn't to say that it's not falsifiable - it may turn out to contain a logical inconsistency. But it seems, nonetheless, like a formal principle by which we parse data - something more like a Kantian principle of the understanding.

At the very least, the principle of marginal utility is rather deep within the center of our proper web of belief - very close to logical principles, I'd say.

Posted by: Octagon at Apr 5, 2007 12:02:50 PM

Tyler: How far in your web of belief is the principle of marginal utility? What would it take to disconfirm it?

Posted by: The Garbageman at Apr 5, 2007 12:03:32 PM

I just had a great idea: Tyler, you should start a 'web of belief' blog theme! Mention a belief, describe how far in your web of belief it is, briefly describe what would cause you to let go of it, and then let others comment on their own webs.

Posted by: The Garbageman at Apr 5, 2007 12:05:09 PM

I see a South Park episode in this. Kenny gets killed by the fMRI machine and Cartman has to end his school science fair project.

Posted by: Brad Hutchings at Apr 5, 2007 12:20:35 PM

The shocking thing is the size of the effect. For an effect of motivation, this is really striking. It's not as if recognizing a pattern is even something that you can really exert effort to do. You just look at the data (and the participants are all doing that anyway) and non-rational processes in the brain make sense of it.

Posted by: michael vassar at Apr 5, 2007 12:32:57 PM

This is just wierd.

Posted by: joshj at Apr 5, 2007 12:52:42 PM

Suppose the picture on the card were of a lightning bolt, and the subjects received a shock unless they predicted when it would come up next. If some subjects learned how to predict the lightning bolt faster than others would we be measuring their utility of not getting shocked?

I don't think so, and I don't think we're measuring their utility in the present case, either.

Posted by: eddie at Apr 5, 2007 1:09:44 PM

I commented a bit more on the article here:

http://economistsview.typepad.com/economistsview/2007/04/scientific_amer.html

It includes some additional excerpts from the press release on how they tried to measure marginal utility. I was less than impressed.

Posted by: Mark Thoma at Apr 5, 2007 1:24:40 PM

This is a bit silly. I'm not sure how you get from this strange experiment to anything truly relevant about capitalism. Though it is an interesting piece of psychology.

Posted by: tommy at Apr 5, 2007 5:16:26 PM

A lot of the traders in the commodities pits in Chicago came from relatively humble backgrounds, with the stereotypical profile being the "former cab driver". Floor trading requires a lot of the same pattern recognition skills as displayed in this experiment. In fact, many successful floor traders look for the "hungry, street-smart" type as protoges, saying that overly smart, Ivy-league types "think too much".

Look at the backgrounds of a lot of champion poker players - a few MIT rocket scientist types, but a lot of people who grew up in the "culture", so to speak.

Posted by: Doug at Apr 5, 2007 6:15:24 PM

"...poorer people learn quickly how to maximize their profits, leaving their wealthier counterparts in the dust."

Which kinda makes you wonder why they're still poor...

The next study will analyze who takes longer to learn how to scratch a lottery ticket.

Posted by: Russ R at Apr 5, 2007 11:39:27 PM

Prof. AT,

Perhaps the rich are more focused on the 'bigger picture' which is why they tend to be more affluent. The poor, by necessity or by design are better attuned to 'cheap thrills' and miss big opportunities when they arise.

Posted by: Chairman Mao at Apr 6, 2007 3:26:44 AM

Many studies of the tolls drivers will pay to save time, have shown that they value their commuting time as a fraction of their income. This study implies that effort is also valued as fraction of income/wealth. Peoples utility might be better modeled in terms of the time and/or effort that they will expend to obtain a good.

Posted by: joan at Apr 6, 2007 5:39:45 AM

It should be obvious that you can't conclude anything about supposed differences in the brains of "rich" people and "poor" people based on a sample of 14 subjects. It's ludicrous.

Posted by: Jeffrey Miller at Apr 6, 2007 9:18:44 AM

This experiment appears flawed in that age of participants was not accounted for. Younger people have faster response times than older ones. One may assume that those with more money are older and slower.

Posted by: LEE RUST at Apr 6, 2007 11:11:34 AM

Lee, I think all subjects were students, so presumably age differences were minimal. And Jeffrey, you bring up a point common to most fMRI studies - they use small numbers of subjects, so any differences between groups must be very pronounced to be significant. Fine statistical differences just won't be evident.

I think the study results makes sense, and there's no need to over-think it. In fact, one might argue that the study merely confirms the obvious - a small amount of money is more attractive to someone without much money than to someone with lots of it. Still, plenty of studies meant to confirm what is already common wisdom have encountered unexpected results.

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