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The money illusion and the culprit: your ventromedial prefrontal cortex

People process the effects of inflation poorly, which gives rise to what economists call the “money illusion.” According to Scientific Am., Vol. 301, July 2009 at 78, as our brains have evolved we are not able to process effectively the dilutive effect of inflation. If billing rates of partners shock in-house counsel, their ventromedial prefrontal cortex (fetchingly dubbed the VMPFC) is to blame. It does not accurately take account of the fact that the nominal rate is high but the real cost is lower because of inflation.

Anyway, while on the topic of neuroeconomics – the study of the brain and how people process financial information – I would not want to short-change the nucleus accumbens, the area of the brain researchers believe is the seat of greed.

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