Neuroeconomics and management control

At the wake of the global financial crisis which has been inarguably provoked by excessive risk taking in the financial sector, the debate has reopened in practice and academia about managerial incentive schemes that have been able to stimulate generally risk averse individuals for taking up excessive risks. Long-standing questions have resurrected about rationality of economic decision making, risk-inclination, the extent to which increasing magnitudes of rewards still motivate people, how people asses economic alternatives under risks and uncertainty and evaluate present vs. future outcomes. The aim of this presentation is to discuss how neuroeconomics can contribute to understanding of managerial decision making under risk and in time. Neuroeconomics as an inter-discipline of behavioural economics, psychology and neuroscience draws on techniques of imaging brain activity during execution of an economic task to explain the role that neural subsystems play in economic behaviour. Methodical advancements in this field allow researchers to open up what has been considered a ‘black box’ thus far. Joint research efforts of economist, psychologists and neuroscientists have resulted in discovery of brain systems that are underlying the cognitive processes related to coping with risk and uncertainty, intertemporal choices, reward and punishment. These same concepts are central also to the theory of management control systems, which typically seeks to understand how humans process information, make decisions, estimate the future, evaluate the past under a variety of financial incentives.