Forthcoming in: American Economic Review Neuroeconomic Foundations of Trust and Social Preferences

Neuroeconomics merges methods from neuroscience and economics to better understand how the human brain generates decisions in economic and social contexts. Neuroeconomics is part of the general quest for microfoundations – in this case, the microfoundation of individual decision-making in social contexts. The economic model of individual decision-making is based on three concepts – the action set, preferences, and beliefs. Economists assume that an individual will choose his preferred action for a given set of available actions and a given belief about the states of the world and the other players ' actions. Neuroeconomics provides a microfoundation for individual beliefs, preferences, and behavior; it does so by examining the brain processes associated with the formation of beliefs, the perception of the action set, and the actual choice. Moreover, since the set of available actions can be framed in different ways and different frames of the same action set sometimes elicit different behaviors, neuroeconomics may also contribute to a deeper understanding of framing effects. This paper discusses recent neuroeconomic evidence related to other-regarding (nonselfish) behaviors and the decision to trust in other people’s nonselfish behavior. As we will show, this evidence supports the view that people derive nonpecuniary utility (i) fro