Self-referential thinking and equilibrium as states of mind in games: fMRI evidence

Sixteen subjects’ brain activity were scanned using fMRI as they made choices, expressed beliefs, and expressed iterated 2nd-order beliefs (what they think others believe they will do) in eight games. Cingulate cortex and prefrontal areas (active in “theory of mind” and social reasoning) are differentially activated in making choices versus expressing beliefs. Forming self-referential 2nd-order beliefs about what others think you will do seems to be a mixture of processes used to make choices and form beliefs. In equilibrium, there is little difference in neural activity across choice and belief tasks; there is a purely neural definition of equilibrium as a “state of mind.” “Strategic IQ,” actual earnings from choices and accurate beliefs, is negatively correlated with activity in the insula, suggesting poor strategic thinkers are too self-focused, and is positively correlated with ventral striatal activity (suggesting that high IQ subjects are spending more mental energy predicting rewards). JEL C70, C91.  2005 Elsevier Inc. All rights reserved. JEL classification: C70; C91 ✩ This research was supported by a Packard Foundation grant to Steven Quartz, and an internal Caltech grant. * Corresponding author.