By Dave Shiflett (Bloomberg) – The 2008 economic meltdown might be traced, in part, to an ancient section of the brain we “share” with lizards. So says “Mind Over Money,” a PBS special airing April 27 at 8 p.m. New York time. While most shows about economics have all the excitement of a morphine drip, this one is captivating. According to the show, this “ancient part of the brain evolved so long ago we share it with many creatures, including lizards.” It is “triggered by some of the deepest and most primal human needs,” including the acquisition of food, sex and – yes – money. Brian Knutson, a professor at Stanford University, explains that money “activates these circuits and does so very powerfully” which could explain frenzied economic activity such as speculative bubbles. So, perhaps the inner reptile’s a culprit in our current woes. The show pits “rationalist” economists who believe humans almost always act in their own best interest against “behaviorists,” who believe emotions can profoundly affect economic behavior, sometimes for the worst. The rationalist viewpoint is most vividly championed at the University of Chicago, which is unmatched in the number of graduates who have won Nobel prizes in economics. The show includes interviews with finance professor John Cochrane and professor of economics Gary Becker, who argue that people almost always operate in their own economic self-interest, which keep markets stable and efficient. Regulation should therefore be held to a minimum. Behaviorists including Yale professor Robert Shiller, who warned during the housing boom that the nation was in the grips of an “irrational mania,” aren’t buying it. They believe emotion can play a powerful and destabilizing role that can be ameliorated by regulation – which in effect puts the lizard on a leash. The show includes several experiments that suggest the behaviorists may be onto something. In one, participants are asked to bid on a $20 bill, which ends up going for $28. Why would the bidders engage in behavior clearly contrary to their own self interest? The frenzied desire to win drives up the price, then bidders end up trying to lose the least, the show says. “People have played this game for quite high stakes” says Chicago professor Richard Thaler. (You also have to wonder how rational it is to allow yourself to be filmed bidding $28 for a $20 bill.) Another experiment found that people who had seen a “sad” movie were willing to pay four times more for a water bottle ($10) than a group who had not seen the movie. Jennifer Lerner, a Harvard professor specializing in social psychology, says the “sad” subjects didn’t realize the movie had affected them, which indicates economic behavior may be driven by factors we are unaware of. Becker and Cochrane counter that people act differently in labs than in the real world. Yet the real world offers stunning examples of emotions taking over, according to the show. During the recent meltdown irrationality became “the order of the day” but that was nothing compared to the tulip panic of the 1630s, where the value of a single bulb could match that of a house. Almost half the money in the Dutch economy may have been tied up in the tulip trade, the show says. On Feb. 1, 1637 the most expensive bulb failed to sell, causing a panic and collapse that may have taken as long as a generation to recover from. The rationalists insist that panic is not necessarily irrational. In some situations, Cochrane argues, the “rational decision is to run like heck in the other direction.” Proving, if nothing else, that finance isn’t always a sedentary occupation.
