American Economic Review: Vol. 98 No. 4 (September 2008)


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The Brain as a Hierarchical Organization

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Brocas, Isabelle, and Juan D. Carrillo. 2008. "The Brain as a Hierarchical Organization." American Economic Review, 98(4): 1312-46.

DOI: 10.1257/aer.98.4.1312


Based on recent neuroscience evidence, we model the brain as a dual-system organization subject to three conflicts: asymmetric information, temporal horizon, and incentive salience. Under the first and second conflicts, we show that the uninformed system imposes a positive link between consumption and labor at every period. Furthermore, decreasing impatience endogenously emerges as a consequence of these two conflicts. Under the first and third conflicts, it becomes optimal to set a consumption cap. Finally, we discuss the behavioral implications of these rules for choice bracketing and expense tracking, and for consumption over the life cycle. (JEL D11, D74, D82, D87, D91)

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Brocas, Isabelle (U Southern CA, Los Angeles)
Carrillo, Juan D. (U Southern CA, Los Angeles)

JEL Classifications

D11: Consumer Economics: Theory
D74: Conflict; Conflict Resolution; Alliances
D82: Asymmetric and Private Information
D87: Neuroeconomics
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving

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