NEUROSCIENTIFIC FOUNDATIONS OF ECONOMIC DECISION-MAKING† The Neuroeconomics of Mind Reading and Empathy

Economics and game theory are based on the assumption that people are capable of pre-dicting others ’ actions. The most fundamental solution concepts in game theory (Nash equi-librium, backward induction, and iterated elim-ination of dominated strategies) are based on this assumption. These concepts require people to be able to view the game from the other players ’ perspectives (i.e., to understand others’ motives and beliefs). Economists still know lit-tle about what enables people to put themselves into others ’ shoes and how this ability interacts with their own preferences and beliefs. In fact, experimental evidence suggests that many peo-ple do not obey these concepts and frequentl