What is the true nature of currency?
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Dwayne Reed at English Wikipedia [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons
It all starts in the brain. Neural economics is the study of the brain which is as we currently understand the source of all behavior. So when asking the question about the true nature of currency what we really have to understand is the brain and decision making. FMRI studies have been conducted to determine currency effects the brain and decision making by influencing the reward structures of the brain. The book called Handbook of Reward and Decision Making is a must read for anyone interested in learning about neural economics and in my opinion is necessary for understanding how incentives work.
Combining both the hard neuroscience with the understanding of behaviorism can help developers solve deep problems in mechanism design. Mechanism design uses incentives and in specific one of the secrets behind the success of Facebook, Bitcoin, Bittorrent, is the incentive structure not merely the technology. Facebook uses deep concepts from neural economics and rewards participants in various ways, so that anyone who understands why Facebook is sticky can figure out why it's so hard to leave. There is a hidden cost to leaving Facebook (loss of connection to friends) which acts as a sort of vendor lock in mechanism, but there is also peer pressure to get people to join Facebook (if your friends are all there).
What is the neural nature of reward?
When a brain receives rewards it can be seen by neural imaging techniques that certain regions of the brain are activated. Reward can be represented as a digital token, an upvote, a like, or anything else. A reward does not necessarily translate into money but is more about the impact it has on the brain of the person receiving the reward. To put it differently, rewards are stimuli for which individuals are willing to work, which are approached, elicit learning, and influence decisions (Tobler, Kobayashi, 2009). In terms of reward, dopamine seems to the key to understanding the reward mechanism of the brain.
What is common neural currency?
Assumption 1:
- Our behavior is motivated by rewards.
Assumption 2:
- Value is subjective defined by the brain.
The orbitofrontal cortex is likely to be an important brain structure involved in the comparison between different types of goods (Dreher, 2009). Is there a common brain network associated with reward for many different types of goods and is that the obitofrontal cortex? If the evidence supports it and so far it seems to, the orbitalfrontal cortex is the economic network of the brain and economic value is processed there. The common neural currency is the common brain network which is activated by primary and secondary rewards.
How is this significant? Well by understanding how the brain processes value, and makes economic decisions, and by knowing which parts of the brain get activated, we can have a better understanding of the human factor or and human element in decision making. In order to transcend these limitations we have to understand ourselves and our neurology.
References
Dreher, J. C. (2009). Decomposing brain signals involved in value-based decision making. Handbook of reward and decision making (Dreher JC, Tremblay L, eds), 137-164.
Dreher, J. C., & Tremblay, L. (Eds.). (2009). Handbook of reward and decision making. Academic Press.
Tobler, P. N., & Kobayashi, S. (2009). Electrophysiological correlates of reward processing in dopamine neurons. Handbook of Reward and Decision Making, 29-50.