Neuroeconomic Foundations of Trust and Social Preferences: Initial Evidence

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Abstract
Neuroeconomics merges methods from neuro- science and economics to better understand how the human brain generates decisions in economic and social contexts. Neuroeconomics is part of the general quest for microfoundations—in this case, the microfoundation of individual decision-mak- ing in social contexts. The economic model of individual decision-making is based on three con- cepts: the action set, preferences, and beliefs. Economists assume that an individual will choose his preferred action for a given set of available actions and a given belief about the states of the world and the other players' actions. Neuroeco- nomics provides a microfoundation for individual beliefs, preferences, and behavior; it does so by examining the brain processes associated with the formation of beliefs, the perception of the action set, and the actual choice. Moreover, since the set of available actions can be framed in different ways and different frames of the same action set sometimes elicit different behaviors, neuroeco- nomics may also contribute to a deeper under- standing of framing effects. This paper discusses recent neuroeconomic evidence related to other-regarding (nonselfish) behaviors and the decision to trust in other people's nonselfish behavior. As we will show, this evidence supports the view that people de- rive nonpecuniary utility (i) from mutual coop- eration in social dilemma (SD) games and (ii) from punishing unfair behavior in these games. Thus, mutual cooperation that takes place de- spite strong free-riding incentives, and the pun- ishment of free riders in SD games is not irrational, but better understood as rational be- havior of people with corresponding social pref- erences. Finally, we report the results of a recent study that examines the impact of the neuropep- tide oxytocin (OT) on trusting and trustworthy behavior in a sequential SD. Animal studies have identified OT as a hormone that induces