Tag: Neuroscience

  • You, Your Brain and Credit Cards


    A basic assumption in economics and business finance is that individuals are rational in the sense that they compare the cost and benefits of a decision. Generally, this means comparing the cost of investing or consuming today to the expected benefits in the future. Cost is usually the price of the product or investment; expected benefits are harder to figure. The rule is simple; if the expected benefits are greater than the cost, buy it. If not, don’t.

    Even if the cost is spread out into the future – a car paid for with a cash down payment and a car loan – it is relatively easy in theory to discount future costs along with expected benefits back to “present value” (today’s dollars) and do the comparison.

    One question that economics and finance doesn’t ask is: Does how you make a purchase or investment affect the buying decision? Does it matter if you pay cash or use a credit card? Theoretically, the answer is no. But recent neuroscience research indicates that the answer is yes. Whether or not you buy something may be influenced by how you pay for it.

    Paying with plastic fundamentally changes the way we spend money, altering the calculus of our financial decisions. When you buy something with cash, the purchase involves an actual loss… Credit cards, however, make the transaction abstract, so that you don’t really feel the downside of spending money. Brain-imaging experiments suggest that paying with credit cards actually reduces activity in the insula, a brain region associated with negative feelings. As George Loewenstein, a neuroeconomist at Carnegie Mellon, says, “The nature of credit cards ensures that your brain is anesthetized against the pain of payment.” Spending money doesn’t feel bad, so you spend more money. Jonah Lehrer, How We Decide, p.86.

    In another experiment, a group (MIT students) was asked to bid for Boston Celtics tickets. Half the group was told they would pay with cash, the other half with a credit card. The average credit card bid was twice as high as the average cash bid. (Drazen Prelec and Duncan Simester, “Always Leave Home Without It,” Marketing Letters, 12 (2001), 5-12.)

    This example is one of many experiments that indicate our brain tends to highly value immediate gain or pleasure and has difficulty computing future cost. The brain is not very good at “discounting” the future or understanding abstract concepts like interest rates on credit balances. The price we pay for impulsive purchases is an interest rate on credit cards that would make a loan shark blush.

    This type of behavior is reinforced by other types of “irrational” behavior that leads to bad decision making. The limits to human rationality is a major reason why managers find it difficult to make strategic decision involving future events. (See a summary of the brilliant work on the limits of “rational” decision-making by Nobel Prize-winning Daniel Kahneman, Thinking Fast and Slow.)



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  • John von Neumann Sees the Future

    John von Neumann Sees the Future

    John von Neumann

    JOHN VON NEUMANN CREATES
    THE FUTURE

    If you want to understand the world we live in, you
    have to know about the thinking of three men – Alan Turing, Claude Shannon and
    John von Neumann. I’ve talked a little
    about Alan Turing in an earlier essay. 
    All three men knew each other, discussed their thinking with each other, and
    promoted each other’s ideas.

    John von Neumann has been called the smartest
    individual of the 20th Century (by his brother-in-law, who won a Nobel Prize in Physics).  An outline of von Neumann’s accomplishments, which you can read about in 
    Wikipedia, is hard to believe. He invented game theory, which I discussed in
    two earlier posts. He belonged to a group
    of mathematicians who invented new statistical techniques at Los Alamos that
    made the atomic bomb possible. He invented game theory. In 1944,
    he wrote a memo that outlined the structure of the modern computer. He then managed the design and building of a
    modern general computer (to sped up solving partial differential equations his friend Edward Teller had to solve to produce hydrogen bombs) and consulted on the building of virtually all the
    early computers.

    JOHN VON NEUMANN SEES THE
    FUTURE

    In the early 1950s, von Neumann, like Alan Turing, became interested in
    the similarities and differences between computers and the human brain. The study of both was in its infancy. But von Neumann already saw that comparisons
    between computers and human brains could benefit both computer science and
    neuroscience. In the far future, he
    believed they might even converge.

    In 1956, von Neumann was asked to give a series of
    guest lectures at Yale, summarizing his thinking.  Unfortunately, he was dying of cancer and
    couldn’t personally deliver the lectures. In 1957, they were published in a short book, The Computer and the
    Brain.

    Although it was not certain at the time, von Neumann assumed
    (correctly) that the output of neurons was digital. Either a neuron fired or it didn’t.  From this, he argued that a computer could
    simulate the processes of the brain but that the converse wasn’t true.

    Von Neumann calculated that the processing speed of
    the brain was very slow but the brain overcame this through massive parallel
    processing. All of the neurons, about 100 billion, are
    processing at the same time; through synapses between neurons, they are all
    computing simultaneously.  This is how
    supercomputers work – parallel processing through the interaction of many
    computers or servers. Only at vastly faster speeds
    than the brain. The total processing,
    measured in operations per second, is approaching that of the brain.

    But von Neumann saw even further into the
    future. He believed that we were at the
    beginning of a turning point in human history. He foresaw that the exponential increase in knowledge of computer
    technology and how the brain worked would have profound effects on humanity’s
    future. In the early 1950s, he told Stan
    Ulam, a brilliant mathematician, that

    the ever-accelerating progress of
    technology and changes in the mode of human life give the appearance of
    approaching some essential singularity in the history of the race beyond which
    human affairs, as we know them, could not continue.

    The possible implications of this statement,
    especially the use of the word “singularity,” are scary.
     T
    he entrepreneur and inventor Ray Kurzweil, who is now an intellectual in residence at Google, has been the biggest champion of the Singularity. Mr. Kurzweil wrote The Age of Intelligent Machines in 1990, The Singularity Is Near in 2005, and has now written The Singularity Is Nearer. By the end of the decade, he expects computers to pass the Turing Test and be indistinguishable from humans. Fifteen years after that, he calculates, the true transcendence will come: the moment when “computation will be part of ourselves, and we will increase our intelligence a millionfold.” This is also one description of artifice general intelligence, or AGI. At Meta, it is known as “super intelligence.”

    Geoffrey Hinton developed the ideas behind neural networks decades ago. He educated many of the scientists who developed the AI statistical methods that “trained” some of the first AI foundational models. Professor Hinton, the “godfather of AI,’ recently said on Ian Bremer’s show GZERO World that within at most 10 years computers would be “smarter” than humans. He didn’t sound too happy about it.


    If you would like to know just how scary all this could be, read Ray Kurzweil, The Singularity is Near:  When Humans Transcend Biology. I would not recommend reading this just
    before you try to go to sleep.

    A LITTLE HISTORY:  WATSON PLAYS JEOPARDY

    In 2011, IBM’s supercomputer Watson played against
    the two best Jeopardy players.  Watson’s
    predecessor, Big Blue, had defeated the world’s best chess player, Gary
    Kasparov.  Chess is a highly structured
    game where Big Blue’s ability to evaluate millions of combinations of future
    moves gave it an advantage over the more limited memory of Kasparov. But Jeopardy was different. Besides knowing a vast and varied amount of
    information, the supercomputer had to understand natural language and come up
    with the most probably answers. Jeopardy
    clues included puns, metaphors, double entendres, humor and worse, word
    combination and rhymes not found in normal speech. Rather surprising, Watson beat the two of the most successful human Jeopardy competitors. For some computer
    scientists, this meant that Watson had passed the Turing Test. For a few others, Watson had gone beyond it.

    We now know what came next. It took magnitudes of increase in computer processing capacity and speed, partly based on massive parallel processing. This led to the large learning models of artificial intelligence. Von Neumann would not be surprised.

    THE FUTURE STARTS TO ARRIVE

    The following is a summary of an article in The New
    York Times, “Brainlike Computers, Learning From Experience,” December 29, 2013.

    “Computers have entered the age when they are able to
    learn from their own mistakes.”  They can
    automate programming, like how to move a robot’s arm, and tolerate errors.  The new computer chips are based on
    neuroscience, “how neurons react to stimuli and connect with other neurons to
    interpret information.”  The new approach
    to artificial intelligence will allow computers to do many things humans do
    with ease – “see, speak, listen, navigate, manipulate and control.”  Some of this, such as SIRI voice recognition,
    is already here.

    The big difference is that computers will no longer
    be limited to what they have been specifically programmed to do. Computers use statistical algorithms to
    learn. Last year, Google researchers
    used a type of algorithm called a neural network into a computer, which was
    able to learn without detailed instructions or human supervision.  The computer was fed 10 million images and
    taught itself how to recognize cats.

    The new processors are not programmed in the usual
    sense.

    Rather, the connections between the
    circuits are “weighted” according to correlations in tagged data and images that the processor
    has already “learned.”  Those weights are
    then altered as data flows in to the chip, causing them to change their values
    and to “spike.”  That generates a signal
    that travels to other components and, in reaction, changes the neural network,
    in essence programming the net actions much the same way that information
    alters human thoughts and actions.

    This is how the brain works.  A neuron (nerve cell in the brain) receives
    information from hundreds or thousands of other neurons.  If a critical level of cumulative inputs is
    reached, the cell “spikes” and sends an electrical impulse down a filament
    called an axon.  This releases chemicals
    called neurotransmitters that are picked up by other neurons and may contribute
    to their “spiking,” possibly changing other neurons.  These changes lead to changes in human
    thoughts and actions.

    An advantage of the new approach is that the
    algorithms can adapt and continue working even when there are failures to
    complete prior tasks.

    Computers are combining biological and statistical
    techniques to overcome the limitations of traditional programming.

    It seems to me that the logic of this approach is
    similar to Bayesian statistics. The
    general nature of the algorithms, neural networks and genetic algorithms, has
    already been developed.

    This is another step away from the rigid programming (deterministic algorithms), and error-free hardware of computers. There will be feedback effects as scientists learn more about how the
    brain works and how computers are programmed to simulate the brain.  Already, there is a field of research called
    computational neuroscience.

    The largest class at Stanford last fall was a
    graduate course on applying biological and statistical techniques to computer
    learning.

    All of this returns us to the early speculations in
    the 1940s and 1950s on how information theory and computers were going to
    influence other disciplines, particularly the biology of the mind
    (neuroscience).  The difference is the
    incredible advances in our knowledge of the brain and the equally incredible
    increases in the processing capacity and speed of computers.  A “thinking computer’” is no longer a
    metaphor or an impossibility.  The
    convergence and feedback of the two areas are leading us into a future even
    beyond the wildest dreams of the early thinkers.

    Except John von Neumann. I imagine he would not be surprised by artificial intelligence.

    ====================================================================

    Related Earlier Posts:


    Alan Turing and Strategic Management

    Limits to Strategic Planning



    The Limits of Negotiation:  A Little Applied Game Theory



    President Obama Learns Some Game Theory

    Go back to the Guide for Posts.

    Many of the posts are about how information influences markets and market behavior. The next step is to conjecture on how AI will affect economic development through innovation, the structure of markets, and the management of corporations. We will all be waiting to see what ChatGPT has to say about all this.





  • Taking a College Course:  What are You Buying?

    Taking a College Course: What are You Buying?

    Eric Kandel Receiving Nobel Prize



    There is a private liberal arts college near me.  They allow outsiders to audit summer courses
    (applying the profound wisdom that if there are empty seats, the marginal cost
    of one more student is zero.  Any revenue
    is pure gain.)  I was interested in a
    course Introduction to Neuroscience. 
    I checked out the course.  That
    got me thinking about the economics of a college course.



    This college charges students about $4,000 a course.  The course is probably taught by a full-time
    professor, probably an Assistant Professor since it fulfills a liberal arts field
    requirement.  There are no
    pre-requisites.  The prof probably is
    paid about $8,000 to teach this course. 
    Assuming 20 students in the course, each student is paying $400 to
    listen to the prof.  About 10% of the
    total cost.  What does the other 90% buy
    you?



    The main reading is In
    Search of Memory
    by Eric Kandel, who won a Nobel Prize for his research in
    neuroscience.  He is an engaging,
    wonderful writer; I had already read another book by him.  So I bought this book for my Kindle; it cost
    $9.99.  I read it.  Much of the book talks about Dr. Kandel’s
    personal and intellectual odyssey that led to his Nobel Prize.  He also patiently summarized the past
    research that laid the foundation of ideas and conjectures for his
    research.  The difficult parts were the
    explanations of his research.  Some
    background in very basic biochemistry and a little bit of explanation on the
    structure of the brain is needed (many illustrations in the book).  I would guess that about two good lectures
    would do it.



    The rest of the readings were supplemental and available on
    the Internet.  One other point.  To really understand Dr. Kandel, it is
    necessary to know more of the background history in the intellectual climate of
    Vienna, especially during the 60
    years before the Nazis marched in, in 1938. 
    Dr. Kandel talks a lot about this and how important it was to him (his
    family, like many others he talks about in this book, were refugees fleeing
    Hitler).  No reading on the historical
    background was assigned. I doubt if the prof knows much about the historical
    background. 



    Another point.  To be
    really prepared to understand the technical material on how the brain functions
    and particularly how we remember, a good course on the structure and dynamics
    of the brain is necessary.  Maybe there
    is a course at this college; if so, it would cost another $4,000.  Or you could spend about $50 to buy and watch
    a great video course on this topic from Great Courses, given by a
    neuroscientist who is the Professor of Cell and Development Biology in the
    School of Medicine, and Professor of Neurosciences in the College of Arts and
    Sciences at Vanderbilt University.  (I’ve
    seen it.)  But this college won’t give you
    three credits to watch this course.



    So better, far less expensive alternatives are
    available.  So why does the course cost
    so much and why does 90% of the cost go to the college and not the prof?  What exactly are you buying for $4,000?



    First of all, the classroom. 
    But classrooms can be rented cheaply and not necessarily at the
    college.  The local public library has a
    meeting room that is equipped as well as any classroom.  In fact, profs from this college teach
    lifelong learning courses there to idle adults like me.  At $75 a course.  Let’s hear it for price discrimination. The
    difference?  I don’t get any college
    credits for taking the course.



    You are also buying a whole bundle of goods and services
    that the college offers outside the classroom.  
    This college has a modern gym and pool it just built.  So you are saving $50 a month so you don’t
    have to go to a comparable gym and pool a mile away.  You are buying psychological counseling,
    tutoring, cultural events, social events, networking opportunities, career
    counseling and other services.  You get
    to play sports.  You get access to an
    excellent library, which might not be worth much to you, given the
    Internet.  What is all this worth to
    you?  It depends (you knew I would say
    that somewhere in this blog).  But I
    doubt if all this adds up to anywhere near $36,000 a year.



    Go to the admin buildings. 
    You will probably be amazed at how many people it takes to administer a
    college.  How many vice-presidents, deans,
    associate deans, assistant deans, directors, assistant directors and onward
    down the bureaucratic food chain.  Marvel
    on how nice their offices are.  Notice
    particularly the size of the admissions department and read in the annual
    report how much the college spends on marketing.  This is a very competitive industry.  It takes a lot of money to convince a few
    hundred students to come to this college. 
    The ones who choose to go there pay for all this marketing.



    But the most expensive thing you are buying is a
    degree.  Colleges form a self-regulating
    cartel that determines who can issue a college degree.  Inexpensive alternatives are simply
    forbidden.  Well, not simply.  You would not believe the state and
    self-accrediting requirements to be a degree-issuing college. No wonder it
    takes so many people to do so much paperwork. 
    But very little of this has anything to do with the cost or quality of
    the education you receive.  A few
    accredited for-profit colleges strip away much of the auxiliary services,
    charge lower tuition and still make a good profit.



    This is also a strange business.  The buyer (you) has virtually no say in the
    courses offered, the requirements for graduation, when the courses are taught,
    or what they contain.  The immediate
    service provider, the prof, is probably also tenured, which means he can’t be
    fired for incompetence.  You can’t
    complain.  It also means he can pretty
    much choose what courses he wants to teach. 
    The list of economics electives at this college is rather strange.  Many of them should probably be in the
    sociology or political science department. 
    You won’t learn very much about how the American economy actually
    functions.  For example, there is no
    course on financial markets.



    So, hopefully, you’re mostly buying the middle-class admissions
    ticket.  But wait.  So are a whole lot of other students.  The college industry is one of the great
    growth industries (and one of the worse managed but that doesn’t matter).  So now you have to go to graduate
    school.  This is where education gets
    serious.  You have to choose a narrower
    field of study and really learn it. 
    Unfortunately, you (and/or the rest of society) have already spent
    $160,000 to get you there.  And you
    better be successful because you probably have some big student loans to pay
    back.


    Footnote.  If I
    understand what Dr. Kandel and others have learned about memory, then lazy
    students are rational learners.  If you
    are taking a course you’re not interested in (it fulfills a graduation
    requirement, it’s offered at a convenient time, the prof is an easy grader,
    etc.), then it makes sense not to study very much.  Cram just before the exams.  Develop good guessing skills, especially if
    the prof is lazy and gives multiple-choice tests.  Get as much of the material you think will be
    on the test into your short-term memory just before the test.  Ignore the rest.  After the test, you’ll probably forget most
    or all of it (it doesn’t make it to your long-term memory).  Don’t worry about it – that’s how your brain
    works.  Blame it on evolution.

    ________________________________________________________________________

    You might be interested in the related post, College of the Future.