Imagine that your child’s private school tuition bill of $20,000 is due and the only source you have for paying it is the sale of some of your stock holdings. Fortunately, you got in on the great Google godsend and purchased 100 shares at $200 each, for a total investment of $20,000, and the stock is now at $400 a share. Should you realize your net gain by selling half of your Google stock and paying off your bill? Or should you sell off that Ford stock you purchased ages ago for $40,000 at its current value of $20,000?

If you are like most people (myself included), you would sell your Google stock and hang on to your Ford stock in hopes of recovering your losses. This would be the wrong strategy. Why would you sell shares in a company whose stock is on the rise, and hang on to shares in a company whose stock is on the decline? The reason, in a phrase, is “loss aversion,” and the psychology behind it does not fit the model of Homo economicus, that figurative species of human characterized b unbounded rationality in decision making.

Homo economicus is extinct, felled by the new sciences of behavioral economics and neuroeconomics, which have demonstrated that we are remarkably irrational creatures. Thousands of experiments in behavioral economics since Daniel Kahneman and Amos Tversky founded the field with their seminal 1979 paper, “Prospect Theory: An Analysis of Decision under Risk,” have demonstrated that most of us are highly loss averse. Specifically, most people will reject the prospect of a 50–50 probability of gaining or losing money, unless the amount to be gained is at least double the amount to be lost. That is, people feel worse about the pain of a loss than they feel better about the pleasure of a gain. Twice as badly, in fact.

Thanks to functional magnetic resonance imaging (fMRI), we now know where in the brain this effect happens. To see this science firsthand, I visited the lab of neuroscientist Russell A. Poldrack and behavioral economist Craig R. Fox at the University of California, Los Angeles, and climbed inside the cramped quarters of the magnetic tube. The MRI scanner snaps a picture of the brain every two seconds while the subject makes decisions about gambles, which are presented through goggles featuring tiny screens on which the choices are offered. Corrections for head motion are made by aligning the individual two-second images with one another; the data from all subjects are then warped together to correct for differences in brain size and shape. A statistical model is generated to show how the MRI signal should change over time in an area that responded perfectly to the task, followed by statistical tests to compare the observed data with the perfect model, resulting in statistical maps that are then converted into colorful pictures of brains in action.

In “The Neural Basis of Loss Aversion in Decision-Making under Risk,” in the January 26 Science, Poldrack, Fox and their colleagues Sabrina M. Tom and Christopher Trepel presented the results of their fMRI study, in which they offered subjects a prospect of accepting or rejecting a gamble that offered a 50–50 chance of gaining or losing money. As the potential for gains rose, they found increased activity in the mesolimbic and mesocortical dopamine systems (dopamine is a neurotransmitter substance associated with motivation and reward).

As the potential for losses increased, they found decreasing activity in these same reward-sensitive areas. Interestingly, it appears that losses and gains are coded by the same brain structures — the ventromedial prefrontal cortex, associated with decision making and learning in the context of reward and punishment, and the ventral striatum, associated with learning, motivation and reward. Individual differences in loss aversion were predicted by how much more the brain was turned off by losses than it was turned on by gains.

This effect may be caused by differences in neurochemistry, which means that some of us may be hardwired to be high- or low-risk takers, translating into real-world financial prospects, both good and bad.

Have you ever watched a white rat choose between an 8 and 32 percent sucrose solution by pressing two different bars on variable-interval schedules of reinforcement? No? Lucky you. I devoted two years of what would otherwise have been a misspent youth to running choice experiments with rats in Skinner boxes for my master’s thesis on “Choice in Rats as a Function of Reinforcer Intensity and Quality.” Boys gone wild!

Since then, the behaviorists’ black box has been penetrated by neuroscientists; most recently by Read Montague of the Baylor College of Medicine with Why Choose This Book? (Dutton, 2006). Montague argues that our brains evolved computational programs to evaluate choices in terms of their value and efficiency: “Those that accurately estimate the costs and the long-term benefits of choice will be more efficient than those that don’t.”

Life, like the economy, is about the allocation of limited resources that have alternative uses (to paraphrase economist Thomas Sowell). It all boils down to energy efficiency. To a predator, Montague says, prey are batteries of energy: “This doctrine mandates that evolution discover efficient computational systems that know how to capture, process, store, and reuse energy efficiently.” Those that do so pass on their genetic programs for efficient computational neural processing to make efficient choices. As a result, our brains only consume about one-fifth the energy of a lightbulb.

Unfortunately, these evolved computational programs can be hijacked. Addictive drugs, for example, rewire the brain’s dopamine system — normally used to reward choices that are good for the organism, such as obtaining food, family and friends — to reward choosing the next high instead. Ideas do something similar, in that they take over the role of reward signals that feed into the dopamine neurons. This effect includes bad ideas, such as the Heaven’s Gate cult members who chose suicide to join the mother ship they believed was awaiting them near Comet Hale-Bopp. The brains of suicide bombers have been similarly commandeered by bad ideas from their religions or politics.

In The Science of Good and Evil (Times Books, 2004), I argued that we evolved moral emotions that operate similarly to other emotions, such as hunger and sexual appetite. Thinking of these emotions as proxies for highly efficient computational programs deepens our understanding of the process. When we need energy, we do not compute the relative caloric values of our food choices; we just feel hungry, eat and are rewarded with a sense of satisfaction. Likewise, in choosing a sexual partner, the brain employs a computational program to make you feel attracted to people with good genes, as indicated by such proxies as a symmetrical face and body, clear complexion, and a 0.7:1 waist-to-hip ratio in women and an inverted pyramid build in men. Similarly, in making moral choices about whether to be altruistic or selfish, we feel guilt or pride for having done the wrong or right thing. But the moral calculations of what is best for the individual and the social group were made by our Paleolithic ancestors. Emotions such as hunger, lust and pride are stand-ins for such computations.

How can we utilize this theory of choice to our advantage? Montague employed functional magnetic resonance imaging (fMRI) brain scans to discover that certain brands, such as Coke, “change dopamine delivery to various brain regions through their effect on reward prediction circuitry.” The Coke brand has a “flavor” in the ventromedial prefrontal cortex, a region essential for decision making. Just as Coke is a proxy for flavor, hunger a proxy for caloric need, lust a proxy for reproductive necessity, and guilt and joy proxies for immoral and moral behavior, so, too, can we market moral brands to rewire brains to value and choose good ideas.

In honor of the late economist Milton Friedman, author of the radical book Free to Choose, I propose that we begin by marketing this brand — the Principle of Freedom: all people are free to think, believe and act as they choose, as long as they do not infringe on the equal freedom of others.