Chen-Ying Huang

Intuition and Deliberation : Two Systems for Strategizing in the Brain

Optimal gaming requires matching the type of neural circuitry (intuitive versus deliberative) to the type of game. Playing More Games The neural mechanisms underlying strategic decision-making and social preferences can be teased apart by experimental “games.” In one class of two-player games known as dominance solvable, a unique strategy emerges that is the optimal one to adopt because it cannot be overcome by what the other player does. In a second class of games, there is no unique solution, and the optimal strategy requires the players to coordinate, which, in the absence of explicit communication, arises from a “meeting of minds.” Kuo et al. (p. 519) have conducted a neuroimaging study of subjects playing these two kinds of games and found that brain regions previously associated with deliberate and effortful reasoning are activated during dominance-solvable games, whereas other brain regions linked to social processing take the lead during coordination game playing. Dual-process theories distinguish between intuition (fast and emotional) and reasoning (slow and controlled) as a basis for human decision-making. We contrast dominance-solvable games, which can be solved by step-by-step deliberative reasoning, with pure coordination games, which must be solved intuitively. Using functional magnetic resonance imaging, we found that the middle frontal gyrus, the inferior parietal lobule, and the precuneus were more active in dominance-solvable games than in coordination games. The insula and anterior cingulate cortex showed the opposite pattern. Moreover, precuneus activity correlates positively with how “effortful” a dominance-solvable game is, whereas insula activity correlates positively with how “effortless” a coordination game is.

Consistent solutions for cooperative games with externalities

In order to calculate the worth of a coalition of players, the coalition needs to predict the actions of outsiders. We propose that, for a given solution concept, such predictions should be made by applying the solution concept to the “reduced society” consisting of the non-members. We illustrate by computing the r-core for the case of Bertrand competition with differentiated commodities.

The Recursive Core for Non-Superadditive Games

We study the recursive core introduced in Huang and Sjostrom [8]. In general partition function form games, the recursive core coalition structure may be either coarser or finer than the one that maximizes the social surplus. Moreover, the recursive core structure is typically different from the one predicted by the α-core. We fully implement the recursive core for general games, including non-superadditive games where the grand coalition does not form in equilibrium. We do not put any restrictions, such as stationarity, on strategies.

Interlinked Contracts: An Empirical Study

This study investigates contractual relations between farmers and sugar mills in Japanese colonial Taiwan. Our investigation is based on a model of interlinked contracts that is adapted from Gangopadhyay and Sengupta (1998). The validity of our models predictions is verified by analysing a dataset consisting of contracts between Taiwans cane farmers and sugar mills. Our data suggest that the contractual relationship is consistent with a scenario in which the interest rates charged by sugar mills on cash loans to farmers are set in order to prevent the diversion of funds to other uses.

Why Do Irrelevant Alternatives Matter? An fMRI-TMS Study of Context-Dependent Preferences

Both humans and animals are known to exhibit a violation of rationality known as “decoy effect”: introducing an irrelevant option (a decoy) can influence choices among other (relevant) options. Exactly how and why decoys trigger this effect is not known. It may be an example of fast heuristic decision-making, which is adaptive in natural environments, but may lead to biased choices in certain markets or experiments. We used fMRI and transcranial magnetic stimulation to investigate the neural underpinning of the decoy effect of both sexes. The left ventral striatum was more active when the chosen option dominated the decoy. This is consistent with the hypothesis that the presence of a decoy option influences the valuation of other options, making valuation context-dependent even when choices appear fully rational. Consistent with the idea that control is recruited to prevent heuristics from producing biased choices, the right inferior frontal gyrus, often implicated in inhibiting prepotent responses, connected more strongly with the striatum when subjects successfully overrode the decoy effect and made unbiased choices. This is further supported by our transcranial magnetic stimulation experiment: subjects whose right inferior frontal gyrus was temporarily disrupted made biased choices more often than a control group. Our results suggest that the neural basis of the decoy effect could be the context-dependent activation of the valuation area. But the differential connectivity from the frontal area may indicate how deliberate control monitors and corrects errors and biases in decision-making. SIGNIFICANCE STATEMENT Standard theories of rational decision-making assume context-independent valuations of available options. Motivated by the importance of this basic assumption, we used fMRI to study how the human brain assigns values to available options. We found activity in the valuation area to be consistent with the hypothesis that values depend on irrelevant aspects of the environment, even for subjects whose choices appear fully rational. Such context-dependent valuations may lead to biased decision-making. We further found differential connectivity from the frontal area to the valuation area depending on whether biases were successfully overcome. This suggests a mechanism for making rational choices despite the potential bias. Further support was obtained by a transcranial magnetic stimulation experiment, where subjects whose frontal control was temporarily disrupted made biased choices more often than a control group.