Dopamine, Reward Prediction Error, and Economics*

Abstract

The neurotransmitter dopamine has been found to play a crucial role in choice, learning, and belief formation. The best-developed current theory of dopaminergic function is the "reward prediction error" hypothesis—that dopamine encodes the difference between the experienced and predicted "reward" of an event. We provide axiomatic foundations for this hypothesis to help bridge the current conceptual gap between neuroscience and economics. Continued research in this area of overlap between social and natural science promises to overhaul our understanding of how beliefs and preferences are formed, how they evolve, and how they play out in the act of choice. I. INTRODUCTION Dopamine is a neurotransmitter—a substance that transmits information from one nerve cell of the brain to another. A long line of neurobiological studies have shown that dopamine plays a crucial role in many aspects of behavior that are important to economic decision-making (see Section II). 1 The goal of this pa- per is to characterize the "dopaminergic reward prediction error" (DRPE) hypothesis, which has become the standard model within neuroscience. This model asserts that neurons that contain this neurotransmitter release dopamine in proportion to the difference between the "predicted reward" and the "experienced reward" of a particular event. The model was developed following experimen- tal work on monkeys by Schultz, Apicella, and Ljungberg (1993) and Mirenowicz and Schultz (1994). They established that the ex- tent to which dopamine is released in response to a juice "reward" depends critically on whether or not receipt of the reward has already been signaled. In the presence of a clear prior cue, the release of dopamine shifts forward in time to coincide with the cue rather than with receipt of the reward. Recent theoretical and experimental work on dopamine re- lease has focused on the role this neurotransmitter plays in