Anatomy of Give and Take
In virtually every area of markets, human behavior has economists stumped.

"We don't know why stock prices go up and down," said Caltech economist Colin Camerer. "We don't know why savings rates are so dramatically different in different parts of the world. We don't know why there is labor market discrimination."

People trust other people when economic theory says they should not. They cooperate when betrayal seems more rational. They gamble foolishly, overestimating risk when they are losing, and underestimating it when they are winning. They spend too much and save too little.

Economists know all this from personal experience, but they don't know how to factor the quirks of human behavior into their mathematical models. This is no small matter. Efforts to set interest rates, revamp health insurance, privatize Social Security, revise pensions, police the sale of securities and alter legal liability rules rely to some degree on economists' ability to make reliable predictions about the choices people will make.

"Economics has hit the wall," said Andrew Lo, director of MIT's laboratory for financial engineering. "It has explained about as much as it can with the tools it has. There are too many inconsistencies between theory and data."

Pioneers in neuroeconomics believe the key to understanding economic behavior lies deep in the brain, at the level of cells and synapses.

The brain is above all an economic engine forged by evolution through eons of scrounging for scarce resources, they argue. So the ability to trade things of value is the defining characteristic of the brain, the keystone of human character.

"Trade preceded agriculture; it preceded cities; it is a major component in human sociality. More than anything, it explains our success as a species," said Vernon Smith, an economist at George Mason University whose work in experimental economics earned him a Nobel Prize in 2002.

Some experts suggest that stock markets and other financial exchanges, as creations of the human intellect, may mirror the biological networks in the brain.

If only they can understand the brain, researchers believe, the mysteries of markets will be revealed.

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Inside her scanner at Baylor, Tang made up her mind.

She signaled her decision with a tap of a button.

As the trustee, she had chosen cooperation. She split the proceeds of her partner's first investment evenly.

Isolated in the neighboring scanner, tracking her partner's decisions via icons on a computer screen, Belur had no way to know whether that choice was sincere or simply a strategy to encourage further investment until the odds would shift in favor of betrayal.

Even so, Belur gambled. On the next round, she once more invested everything she had.

Again, her faith was repaid. Tang shared the profits equally.

Tang, who was working on her doctorate in human genetics at Baylor, was drawn to the experiment not by scientific interest in its outcome, but by the spending money she could earn as a volunteer. She had carefully planned how to win as much as possible in the experiment.

"I had a strategy," Tang explained later. "If she was nice to me, I would be nice to her. At the very last round, I would betray her."

A team of researchers led by Read Montague, director of Baylor's Human Neuroimaging Laboratory, and Baylor neuroscientist Brooks King-Casas scrutinized the synapses of both women for cellular evidence of the relationship building up between them.