2022-12

The “Invisible Hand” in the Brain

Hidetoshi Yamaji Masatoshi Gotoh

Yoshinori Yamakawa

The “Invisible Hand” in the Brain
Hidetoshi Yamaji
Masatoshi Gotoh
Yoshinori Yamakawa

Abstract.
In this paper, we attempted to find in the brain the factors of the human side, which is
responsible for the market mechanism called the "invisible hand" by Adam Smith, byusing fMRI experiments. We tried to identify the activated part of the brain that theallocator determines the amount of money to be paid to the responder in playing theultimatum game. That part is the part with which human being considers the otherparty's request and considers also its own interests in the process of trial and error
consisting of market mechanism. This is because it is thought to be responsible for thefunction. It is a brain region called the left supramarginal gyrus, and its activation
degree has a significant correlation with the sympathy scale of psychology. Accounting
information derived from acquisition cost basis is fundamental information for trial anderror done in the brain, that is, for market mechanism.

Keywords:
invisible hand, ultimatum game, sympathy, left supramarginal gyrus

1. Introduction
The language of accounting demarcates the discipline’s subject matter; it has no specificmethodology of its own. The discipline takes as its subjects the accounting systems
operated on a semi-customary basis by firms and today governed by public regulators,
and the accounting information derived therefrom and made publicly available ineconomic society. Although the experiential referents of accounting are limited, thediscipline’s concerns range across many different dimensions. A typical and familiar
example is the question of what meanings specific accounting processes, and theaccounting information produced thereby, have within business organizations and on
securities markets and various other types of markets. In the most abstract terms, the1

discipline affords scope to depict trends in corporate society with accounting systems as
the core concern.
When tracing developments in corporate society, as the starting point for accounting
research the fundamental approach is to employ findings from a variety ofmethodologically-specific disciplines such as psychology and linguistics. Economics isthe archetypal instance. Viewed in this way, accounting is faced with dilemmas at themost fundamental level. Assuming that accounting systems are used within firms andmarkets, the ways in which accounting systems and accounting information are to be
characterized will differ greatly depending on how one understands the concept of “themarket.” One of the primary questions faced in accounting is whether to view themarket as a place where rational individuals encounter one another as consumers andsuppliers, each pursuing their own profit-maximizing behavior, and where prices arebrought to equilibrium by auctioneers; or as places where price convergence isguaranteed by the operation of institutions unrelated to such behavior. If the former
characterization is adopted, accounting systems can be understood in terms of providing
the market with information to aid market participants in their pursuit of profitmaximizing behavior. Under the latter view, however, market participants may notnecessarily behave in a manner consistent with the principle of profit maximization
based on information provided through historically established accounting systems, but
the market nonetheless stabilizes through the use of information through routes not yet
fully explicated by scholars of accounting.
With a view to reconsidering the broad-ranging problems outlined above, this paper
explores the afore-mentioned question how to characterize the market, to the extent thatit concerns the discipline of accounting. For this purpose, the paper examines the ideas
of Adam Smith, instigator of the seminal concept of the market. The section of thearticle immediately following this introduction examines the notion of the “invisible
hand,” which lies at the foundation of Smith’s idea of the market and serves as the pointof departure for a variety of market-related concepts developed over the subsequent
history of the economics discipline. Specific attention is paid to the idea of the“invisible hand,” which generations of scholars have maintained was canvassed bySmith directly in his works The Theory of Moral Sentiments and An Inquiry into the
Nature and Causes of the Wealth of Nations. The third section of the article looks at
various understandings of basic market concepts subsequent to Smith, while fourth
section identifies the factors common across market concepts developed by Smith2himself and subsequently thereto, and employs the results of experiments on the humanbrain to pinpoint the regions of the brain which underpin those concepts. The final andconcluding section discusses the relationship between Smith’s market concept and theactive regions of the brain.
2. Adam Smith’s “Invisible Hand”
This section identifies common points in Adam Smith’s concept of the “invisible hand”
through references—both direct and indirect—to the concept in Smith’s writings.
2-1. References to the “invisible hand” in The Theory of Moral Sentiments:
Mechanisms for distribution of essential commodities
Let us first examine a section of The Theory of Moral Sentiments where the expression“invisible hand” is employed directly. The following is a direct quote from this section.
The Produce of the soil maintains at all times nearly that number of inhabitants
which it is capable of maintaining. The rich only select from the heap what ismost precious and agreeable. They consume little more than the poor, and in
spite of their natural selfishness and rapacity, though they mean only their own
conveniency, though the sole end which they propose from the labours of all the
thousands whom they employ, be the gratification of their own vain andinsatiable desires, they divide with the poor the produce of all theirimprovements. They are led by an invisible hand to make nearly the same
distribution of the necessaries of life, which would have been made, had theearth been divided into equal portions among all its inhabitants, and thus without
intending it, without knowing it, advance the interest of the society, and affordmeans to the multiplication of the species. When Providence divided the earth
among a few lordly masters, it neither forgot nor abandoned those who seemed
to have been left out in the partition. These last too enjoy their share of all that it
produces. In what constitutes the real happiness of human life, they are in norespect inferior to those who would seem so much above them 1.
The landlord—the archetypal rich person—cannot consume all the grain heharvests on his own, so uses the surplus to purchase luxuries. The
1

Adam Smith, 2003, The Theory of Moral Sentiments, pp.165.

3

manufacturers of these luxuries use the money obtained in compensation for
their labor to purchase the grain, which is an essential commodity. Throughthis chain of events, the grain is dispersed not only to the landlord who
produced it but also to the manufacturers of luxuries such as carriages andjewelry. It is distributed across society as if everyone owned land andproduced and harvested grain equally. Smith’s argument therefore is thatrich landlords, led by the “invisible hand [of God],” ultimately achieve
virtually the same distribution of essential commodities as would occur ifownership of land was allocated evenly across all members of society. The
process therefore leads to the state of nature. In the contemporary terms ofmarket equilibrium, this is analogous to multiple markets converging inequilibrium while satisfying their own demands. It is underpinned by the ideathat appropriate distribution will ultimately be achieved as a diversity ofpeople purchase and supply goods on the market through processes of trial
and error. Nobody in this process is actually concerned with doing somethingsocially beneficial. 22-2. Process of formation of Social order or morals in The Theory of Moral
Sentiments: Sympathy 3

There are two distinguishing features of Smith’s work here. One is his understandingthat wealth continues to be owned by individuals. The second feature that must be notedis the notion that money is not the same as wealth (money has absolutely no use otherthan to purchase commodities). It is pointless for a rich landlord to keep the grain
produced on his land to himself, or for a capitalist to do the same with the products massproduced through division of labor, so these goods are eventually exchanged on themarket to meet the landlord or capitalist’s demand for resources for daily living or luxury
items. They are exchanged in turn for new goods and redistributed throughout society.
Smith sees money as a medium that facilitates these exchanges and distributions. Thisidea that money does not exert influence on the real economy is known as the neutralityof money theory. Later to be absorbed into modern economics as a precondition for thequantity theory of money, Smith’s ideas about the neutrality of money were not modified
by other economists until the work of John Maynard Keynes in the twentieth century.
3 In Japanese, Smith’s “sympathy” is usually translated as dōkan, but sometimes askyōkan, a term more commonly used as equivalent to “empathy”. In the field of
psychology, a distinction is made between these two terms. Essentially, sympathy(dōkan) refers to cases where the subject (person feeling the sympathy) remains
distinct and clearly-defined; empathy (kyōkan) is used where the person abandons
their distinct self and actually assumes the same feelings as the other party. Smith’s
use of “sympathy” appears to cover both of these cases, and is used in this paper
without regard for the distinction employed in modern psychology.
24Smith also develops ideas that could be understood as equivalent to the“invisible hand” in other parts of The Theory of Moral Sentiments (hereafter simply“Moral Sentiments”). This is where Smith analyzes the process of formation of morals
in society. The principal idea constituting this analysis is what Smith calls “sympathy.”Moral Sentiments proposes that human beings are aware of the behavior of others insociety, and of the gaze of others upon themselves. On this basis each of us stands in theshoes of others to judge whether we should condone or feel indignation at the behaviorof others. Smith refers to this sentiment as “sympathy,” and says that we also seek tocultivate the positive sympathy of others toward our own behavior. Building further on
this fundamental idea of sympathy, Smith believes that rather than referencing the gazeof any specific individual, we form in our minds the idea of a hypothetical “impartial
spectator” in line with the expectations of society. We shape our behavior to appear
faultless when viewed from the position of this “impartial spectator,” and use the same
position to judge the merit of others’ behavior. As this process is repeated, the moral
order of society comes into being. Smith thus asserts the importance of repeatedly
correcting and adjusting one’s own behavior through self-reflection in thecourse of one’s relations with others. 4 He sees morals as being formed
through a kind of “greatest common factor” process.
In Moral Sentiments Smith argues that we each observe the moods ofothers, and comprehend and make judgments about the sentiments thatcause them from our own distinct standpoints. What sentiments the
behavior of others caused by certain sentiments arouses in its subjects is,however, inevitably based on our own conjecture. The former is defined as adirect process while the latter as an indirect one. If this direct and indirect
understanding of others’ sentiments can be termed “sympathy,” it is easy to
imagine that others possess sympathy as well.
As a result, human beings living collectively in a society are unable tobehave in a manner that diverges greatly from the norms formed throughmutual sympathy, even in such behavior is of itself self-serving. Such normsof behavior are rendered within each of our minds as the view of the“impartial spectator,” allowing us to appreciate the universal moral

This idea is akin to the teachings of Confucius, specifically: “What you do not wantdone to yourself, do not do to others.” This at essence is the principle of fair play. It canbe seen as a minimum standard of social etiquette, rather than a paramount virtue.

4

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standpoints relevant to our contemporary society. We employ these as
criteria for our own behavior and thereby ensure that society is kept stable.
We each conduct ourselves in accordance with mutual sympathy and avoid
behavior problematic from the socially constructed and sublimatednormative standpoint of the “impartial spectator.” This, Smith believed,
cultivates a kind of order in (economic) society. It constitutes Smith’s
response to the question of “how peaceful coexistence among free and equal
self-interested individuals may be achieved without requiring the impositionof power” (Mizuta Hiroshi, 1968). We should note, however, is that this ideaof sympathy is predicated on the notion that we comprehend the feelingsand circumstances of others as a form of knowledge, having first developed asolid grasp of our own place in the world.
Another point worthy of attention is that sympathy can be generated byboth joyful sentiments and ones such as sorrow and anger, but Smith
focuses especially on those with negative aspects. He appears to view
activities that can produce sympathy in a positive sense, such as charity, asof no use in the maintenance of economic society. The charitable activities ofothers may cultivate strong sympathy, but this, in Smith’s view, should notlead us to think that the viability of society requires each individual within
it to engage extensively in charitable (service) activities. The morals formed
through sympathy can be understood as encapsulated primarily in the “fairplay” principle of doing no harm to others, rather than as encouraging theactive pursuit of charitable (service) activities. Smith believed that whenself-interested individuals engage in economic activity in a spirit of fair playin the minimal sense, society will be able to provide all its constituents withessential resources and a minimal standard of living, without the need for
power to intervene.
We come to appreciate where the common moral standards for society lie
through a process of trial and error, as we discuss, debate, show pity for,and sympathize with many different people. Smith does not use thelanguage of the “invisible hand” directly to describe this process of moral
formation, but as Dōme notes, his foundational principles of social order—the6general rules of morality or laws of nature—can be understood as synonymous withthe “invisible hand.” 5
2-3. Process of equilibrium of prices in The Wealth of Nations
Now let us turn to the more well-known treatment of the “invisible hand” inSmith’s work. Below is the most famous—to be more accurate, the only—
passage on the “invisible hand” in An Inquiry into the Nature and Causes ofthe Wealth of Nations (hereafter The Wealth of Nations).
As every individual, therefore, endeavours as much as he can both toemploy his capital in the support of domestic industry, and so to directthat industry that its produce may be of the greatest value; every
individual necessarily labours to render the annual revenue of thesociety as great as he can. He generally, indeed, neither intends topromote the public interest, nor knows how much he is promoting it.
By referring the support of domestic to that of foreign industry, heintends only his own security; and by directing that industry in such amanner as its produce may be of the greatest value, he intends only his
own gain, and he is in this, as in many other cases, led by an invisible
hand to promote an end which was no part of his intention. Nor is it
always the worse for the society that it was no part of it. By pursuing
his own interest he frequently promotes that of the society more
effectually than when he really intends to promote it. I have neverknown much good done by those who affected to trade for the public
good. It is an affectation, indeed, not very common among merchants,
and very few words need be employed in dissuading them from it. 6
The producers of goods know that they have produced them at a certain costto themselves, even if they have no information on the costs which others inthe same vocation have incurred in producing the same goods. This is anatural part of knowing oneself. Producers thus always have an eye for
For Smith, the social order is something designed by “nature,” and human behavior
is simply guided by the “invisible hand” of “nature” (Dōme, p.66).
6 Smith, Adam (translated by Sugiyama Chuhei and translated/edited by Mizuta
Hiroshi), 2000, Kokufuron [The Wealth of Nations]. Iwanami Shoten, paperback
edition, pp.303-304.
57

opportunities to sell their goods on the market with a certain quantum of
profit. If anyone wishes to purchase the goods at the price selected, they will
be sold at that price. It is that simple. What happens when a large numberof people engage repeatedly in this process is that those who canmanufacture their goods at a lower price have more opportunities to sell
their goods. These goods are the first to sell out on the market, followed bythose with the second lowest prices, and so on. Ultimately an equilibrium isreached wherein people seeking to obtain the goods cease to meet with thoseseeking to sell them at a certain price. Under these conditions, those who
produce their goods more cheaply and efficiently generally have greater
opportunities to secure higher profits, while others are only just able torecover the capital enabling them to continue producing. Nobody oversees
this process; it is driven by each individual’s self-interest and desire to
profit.
Smith called this the “invisible hand,” and it is referred to today in terms
such as “market mechanisms” and “price mechanisms.” Government
interference in such price mechanisms, for example by fixing the prices ofgoods, precludes the natural state in which people freely seek tomanufacture, sell and purchase the goods (optimal resource allocation). Thisidea gives rise to the laissez-faire approach which denounces government
intervention and calls for the market to be left to private enterprise. From agovernmental perspective, it is a mandate for small government (low levels
of intervention). It is on the basis of this understanding that Smith has beenlabelled by later generations as a “laissez-faire” economist.
The same understanding constitutes the basic idea of “neoclassicaleconomics,” which developed after Smith’s time and today constitutes themainstream of economic thought. Smith’s successors, however, did notincorporate all of his ideas into their theories, only certain essential features
thereof. The characterization of Smith as “laissez-faire” is therefore an oversimplification.
The “invisible hand” aside, Adam Smith is well-known for the concept ofdivision of labour. Using the example of the process of manufacturing
sewing pins, Smith explains that rather than having a single worker
8perform all stages of the process, productivity can be increased by dividing
the process into a number of sub-processes each performed by a different
worker, enabling each worker to become specialized in the sub-process they
perform. This argument connects with the idea that because no individual
produces all the commodities necessary for their own life, society promotes
greater levels of exchange on the market, thus invigorating economic
activity. Dividing the process of manufacture into a series of finelydistinguished tasks stimulates the processes of exchange and leads to theemployment of greater numbers of workers. Moreover, these processes of
exchange are kept fair under the guidance of the “invisible hand.” Nobody isoverseeing these processes in their entirety, and it is inconceivable thatworkers are inspired by a sense that they are undertaking their tasks forthe sake of wider society. The motivation of capitalists is purely private andself-interested, as they seek higher prices for the goods they produce. The
idea is that all this is regulated by the “invisible hand” toward the positive
outcome of greater productivity for society as a whole.
3. Development of the “Invisible Hand” Concept: Interpretations of Adam Smith’s“Invisible Hand” in Contemporary Economics
3-1. Rationality-based market equilibrium (pricing theory)
Smith’s idea of the “invisible hand” outlined above was both refined and transformed as
the discipline of economics developed after Smith’s time. As it developed, thediscipline, and economics after Walras in particular, saw the profit-maximizing
behavior of companies and consumers as leading to equilibrium pricing on the market.
The process of equilibrium pricing explained in most economics textbooks does notnecessarily accord with the image of guidance by an “invisible hand.” In other words,
volumes of production and consumption are determined in accordance with theprinciple of profit-maximizing behavior of sellers and buyers in the market, on the basisof their individual plans and budgets. However, planned production and consumption
volumes are items of personal information held by each individual producer andconsumer participating in the market, not shared among them. Moreover, because
perfect competition is assumed, each market participant is a price-taker: a reactive
presence. Here economists postulate the presence of “auctioneers” as mediators whogather and impart price information. These auctioneers collect information on the9

production and consumption volumes of individual producers and consumers, establish
an equilibrium of these volumes across society and thereby determine equilibrium
prices, on the basis of which market transactions are conducted. There is no guaranteethat producers and consumers will provide auctioneers with accurate and truthful
information, so research is conducted into the design of systems to guarantee suchaccuracy. It could be ventured that in this kind of orthodox economics, the “invisible
hand” is the presence of transparent auctioneers in an iterative auction process(tatonnement). Auctioneers themselves, however, do not maximize their own profits.
3-2. Equilibrium based on irrationality (experimental markets)
The two key features of the orthodox economic concept of markets outlined above areprofit-maximizing behavior as a manifestation of rational behavior by market
participants, and the presence of auctioneers. In contrast, from the early 1960s onward,
efforts were made to demonstrate that markets could achieve equilibrium even in theabsence of these key features. First the idea developed that a market could reachequilibrium price, depending on the shapes of supply and demand functions, even if
individual market participants did not pursue the kind of profit-maximizing behavior
envisaged in orthodox economics. This was consistently one of the major topics of
discussion in economics from the 1960s onward. Gary S. Becker 7—later tobe awarded the Nobel Prize—established that the presence of “rational
human beings” pursuing profit-maximizing behavior was not an essentialcondition: equilibrium could be achieved even in a so-called “non-intelligent”
human market. In regard to the significance of the auctioneer, 8 Vernon
Smith 9 used experiments to establish that markets reach equilibrium under
double-auction rules. Furthermore, experiments were used in the same way
by Gode & Sunder to confirm that markets reach equilibrium even if bothconditions central to traditional economics, the rational human being andthe auctioneer, are removed at the same time. 10 Debate has continued since

7

Gary S. Becker, “Irrational Behavior and Economic Theory,” Journal of Political

9

Vernon L. Smith, "An Experimental Study of Competitive Market Behavior,”Journal

Economy, Vo.70 (February,1962):1-13.
8 J.R.Hicks, Value and Capital,of Political Economy, Vo.70 (April, 1962):111-37.

D.K. Gode and S.Sunder,“ Allocative Efficiency of Markets with Zero-Intelligence
Traders: Market as a Partial Substitute for Individual Rationality,”Journal of Political
Economy, 1993, Vol.101, No.1.

1010Antonio & Sunder 11 over whether or not equilibrium across multiple
markets, in other words general equilibrium, can be reached following theremoval of these two conditions.
Let us examine the findings of Gode & Sunder’s experiments that
demonstrated how theoretical price equilibrium is reached even in theabsence of the two hypotheses of the rational human being andtatonnement. The findings revealed that these two principal preconditionsof general equilibrium theory were in fact non-essential. As noted above,
Becker had earlier established that even in the absence of the rationality
hypothesis, and even where market actors do not actually behave as
rational human beings, as long as budget constraints exist the demand
function will be downward sloping and the market as a whole will movetoward equilibrium in accordance with physical patterns. Gode & Sunderinvestigated this point further using computerized trading simulations
constrained by budgets and within V. Smith’s “double auction” environment.
The results of Gode & Sunder’s experiments are shown in the Figure 1
below. Price equilibrium is not reached in computerized trading without
budget constraints (see upper section of the figure), but is achieved to aconsiderable degree in budget-constrained computerized trading (a nonrational computer program with constraints only imposed on income andexpenditure; see middle section of the figure). In experiments involving
trading among humans, who may or may not be rational but do possess
memory, price fluctuation was observed in the initial stage, but as time
went on there was little or no deviation from equilibrium pricing (lower
section of the figure). The point is that computerized trading (“nonintelligent” trading) with budget constraints achieved efficiency equal to
between 80 and 90 percent of that of human traders. This proved that priceequilibrium could be reached through budget-constrained computerized
trading and double auctions without relying on the rational human being
model and tatonnement.

Antoni Bosch-Domenech and Shyam Sunder, " Tracking the Invisible Hand:
Convergence of Double Auctions to Competitive Equilibrium," Computational
Economics Vol. 16, 2000.
1111

Figure 1. The results of experiments done by Gode and SunderThis discussion in experimental economics established that market equilibrium could beachieved without relying on the rigid concepts underpinning conventional economics,
such as rational human behavior and the role of auctioneers. 12
3.3 Common understandings: Trial-and-error-based selection/proposal of
substitutive behavioral patterns
What human behaviors underpin the “invisible hand” operating in the processes ofmoral development and market equilibrium? As seen above, the process by which
sympathy enables the development of social morality and the process by which prices
reach equilibrium in the market—two processes that at first glance appear entirely
unrelated—are both conceived and at times expressly labelled by Adam Smith as theworkings of the “invisible hand.” The commonality here exists not in the “laws ofnature” or other such abstract terms, but in human behavior. What is shared across the
Discussion of Walrasian equilibrium and Marshallian equilibrium is omitted here
for reasons of space.

1212

two processes is the understanding that when in society we encounter a third party withdifferent ideas to our own, and it is necessary to engage in some sort of exchange withthat party, we present an offer and observe whether or not the party will accept it. Ifthey do, that is the end of the negotiation; if not, we make a substitute offer. This offer
reflects our own conduct and calculation of gains and losses—in other words, our selfinterest. What we are doing therefore is constructing a strategy of identifying, in thecourse of negotiation with the other party, points of compromise favorable toourselves, while predicting how the other party will respond to them. 13
If the making of these kinds of substitute offers based on selective behavior is taken as
the starting point, we can envisage that as we encounter many different people insociety, we make decisions on our understanding of what each person might allow andat what point they are likely to show aversion, as well as what our own tolerance levels
are. Ultimately we develop within our own minds an objective third party standpoint for
judging our own behavior. The process of formation of morals can be conceptualized as
one in which each individual’s objective third-party perspectives sequentially coalescein greatest-common-factor form as social morality. In the case of equilibrium pricing ina market, even if market participants lack information on their fellow participants, they
gradually gain an understanding of their own situation in the course of trading and begin
to trade at appropriate prices, thereby leading the market as a whole to equilibrium.
Social morality and equilibrium pricing can both be understood as developing throughthe same human behavior of repetitive substitute proposal. Under our interpretation of
the meaning of Adam Smith’s “invisible hand,” this repetitive substitute proposal
behavior is an important human element in the formation of the “invisible hand” as asystem 14.
This idea can also be construed from Gode & Sunder’s work. Their finding that trading
among non-intelligent actors produces results similar to human trading can be attributed
to the fact that while human traders achieve compromise through a process of trial anderror, in the process thereof they adjust their own points of compromise; non-intelligent
Surprisingly, the term “invisible hand (of God)” appears just three times in thewritings of Adam Smith. Two of these are discussed in this paper. The remaining one isin a work on astronomical bodies written when Smith was young. It is not possible toinclude questions of astronomy in the discussion of common issues related to Smith’s“invisible hand” in this paper.
14 Yomogida, Y., Matsumoto, M., Aoki, R. et al. (2017) is also developing the same idea
13

concerning social norm formation and developing a similar neuro-experiment idea.

13actors have predetermined points of compromise that cannot be adjusted, so they simply
pursue the process of trial and error repeatedly.
4. Behavioral Experiments and Brain Experiments: Empathy
4-1. Substitutive behavioral patterns and compromise choices: Ultimatum game
Does human trial-and-error behavior, identified above as a common trait, come about
naturally? Hicks also sees this kind of behavior as part of price formation. 15 The resultsof experiments on the human brain can help to answer this question. Let us refer to theresults of an experiment conducted for a separate purpose. The experiment itself
involved a repetitive ultimatum game played with both tough responders with strong
negotiating skills and responders less skilled in negotiation. It looked at the intracerebral
responses of an “allocator” whose role is to determine the allocation ratio, and analyzed
the behavior of this allocator as they repeatedly made substitute proposals taking into
account their own profits, while distinguishing between tough negotiators and those lessskilled. The question here is what kind of mechanisms within the brain accompany therepetitive, trial-and-error behavior of making substitute compromise proposals that take
into account the behavior of others while pursuing personal gain. First a preparatory
behavioral experiment was conducted to find the regression of allocators’ empathy
levels 16 as assessed in a questionnaire, against the allocation ratios of proposals todifferent responders in negotiation. The results are shown in Figure 2. In Figure 2 Rmeans the following.
Distributions proposed to responders with strong resistance in the final period
R= -----------------------------------------------------------------------------------------------Distribution proposed to responders with weak resistance in the final period

J.R.Hicks, Value and Capital, Chapter 9.
The questionnaire used to assess empathy was taken from Suzuki, Y. and Kino, K.,
2008, “Tajigen kyōkansei shakudo (MES) no sakusei: jiko shikō / tasha shikō nobenbetsu ni shōten o atete” [Creating a Multidimensional Empathy Scale (MES): Focus
on distinguishing between self-orientation and other-orientation], Kyōiku Shinrigaku
Kenkyū Vol.56, 487-497.

15
16

14

Allocation ratio differentialand empathy score
1.6
1.4
1.2

y = 0.1969x + 0.3147
R² = 0.2537

R

1
0.8
0.6
0.4
0.2
0
2.000

2.500

3.000
3.500
Empathy (MES Score)

4.000

4.500

Figure 2. Allocation ratio differential and empathy score
These regression results show a significantly (5%) positive correlation. In other words,
they show that allocators with high empathy generally proposed high allocation ratios astime went on in negotiations. Moreover, they show that higher ratios were proposed totough-negotiating responders than to those less tough. The conditions are different fromthose of a market, but we can conclude that higher levels of empathy are found inallocators who, in the course of negotiation, weigh up their own gains, repeatedly makenew substitute proposals regarding allocation ratios, and advance negotiations in afavorable direction.
Next we investigated which areas of the brain were active when the same allocators
made their allocation ratio proposals. The procedural details of this neurologicalexperiment are omitted here, but the results are shown in Figure 2.

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Left supramarginal gyrus(-42,-42,30)
0.4
0.2
0
2.00
-0.2

y = 0.30 x - 1.05
R² = 0.54
2.50

3.00

3.50

4.00

4.50

-0.4
-0.6

Figure 3. Empathy and activity in the left supramarginal gyrus
Figure 3 shows a regression analysis of empathy levels and the area of the brain that is
active when allocators are making their decisions about allocation ratio proposals.
Significant activity was detected in the left supramarginal gyrus. Combining the two
results in this experiment leads to a finding that an allocator’s capacity to differentiate
allocation ratios based on the toughness of the responders with whom they negotiate isrelated to the strength of the allocator’s empathy, and the measure of that empathy issignificantly related to activity in the left supramarginal gyrus when allocation decisions
are being made. In other words, activity in this area of the brain is connected with theprocess of repetitive substitute proposal. However, this is possibly a manifestation of
one factor that underpins empathy in the sense of consideration toward others.

164-2. New horizons in neuroscience: From activity area focus to system(mirror neuron system) focus
Next let us examine the results of several other experiments. 17 The firstwas conducted by Hartwigsen et al. Details of the experiment itself areomitted here, but the researchers reported that the left dorsal premotor cortex
and left supramarginal gyrus complement each other to abstract and reprogram rapid
substitutive actions. Studies by Inui offer further insight. Inui found that the inferiorparietal lobe (IBL), of which the (left) supramarginal gyrus is part, governs the “likeme” system, which is one of the three systems in the brain that enable humancommunication: 1) the “like-me” system, 2) the “different-from-me” system, and 3) the
prediction and monitoring system. In regard to the construction of images from thestandpoints of Self and Other, Inui states: “the activity of the left IPL is restricted by the
medial prefrontal cortex (mPFC) when images of the Other are being constructed. As
the IPL is part of the ‘like-me’ system, this appears to be restricting the Self standpoint
in order to assume the standpoint of the Other.” 18 This may mean that our experiment
which observed activity in the left supramarginal gyrus actually identified part of thebrain’s communication system (left IPL) when the “like-me” system is in operation.
Going a step further, we can look beyond the conventional interpretation of Adam
Smith’s “invisible hand” as an abstract reference to divine laws, and see it as referringto the communication system in the human brain which governs negotiation with others.
While the formation of social morals is quite literally a process of communication
through human language and emotion, price formation in the market can be understoodas a process of human communication through the language of pricing.
5. Conclusions

Gasa Hartwigsen, Sven Bestmann, Nick S. Ward, Saskia Woerbel, Claudia
Mastroeni, Oliver Granert and Hartwig R. Siebner, " Left Dorsal Premotor Cortex andSupramarginal Gyrus Complement Each other during Rapid Action Reprogramming,"
The Journal of Neuroscience, November 14, 2012/32:16162-16171.
18 Inui, T., 2012, “Enkatsu na kanshuganteki intarakushon o kanō ni suru shinkeikikō” [Neural mechanisms facilitating intersubjective interaction], Kokoro no Mirai,
Vol. 9, 14-17. Ogawa, K., and Inui, T., 2011, “Neural representation of observed actionsin the parietal and premotor cortex,” Neuroimage, 56, 2, 728-735. Ogawa, K., and Inui,T., 2012, “Multiple neural representations of object-directed action in an imitative
context,” Experimental Brain Research, 216, 1, 61-69.
17

17

By extrapolating from the results of brain experiments, we suggest that through theoperation of neural systems involving the left supramarginal gyrus, humans repeatedly
make substitute behavioral offers that ultimately lead society to a certain convergence(equilibrium). In other words, the function of the “invisible hand” is supported throughthe medium of empathy. This idea is consistent with the emphasis that Adam Smith
placed on “sympathy.” Such convergence is not achieved, however, simply throughsystems within the brain, but rather operates in conjunction with institutional factors,
typically the shapes of demand and supply functions in the market.
Our experiment revealed that the degree of activity in the left supramarginal gyrus inpeople engaged in a repetitive ultimatum game correlates positively with the degree towhich they expand their scope for compromise in line with the resistance of thecounterparty to the negotiation. Interpretations of this finding may vary, but Inui assertsthat the left supramarginal gyrus is partly responsible for the “like-me” system in thebrain. Moreover, medical journals identify the left supramarginal gyrus as a key toaccumulating visual data and converting it into actions. In light of these insights, theresults of our experiment may show that our brains use the “like-me” system (mirror
neurons) to visually confirm the negotiating ability of the counterparty, and if thecounterparty shows a large degree of resistance, come to the conclusion through theidentification process that the counterparty is troublesome and proceed to make major
compromises. This is similar to the process of market price formation in which
participants make compromises with suppliers unwilling to give large discounts, or with
consumers unwilling to pay large sums of money. It is also conceivably applicable tothe process by which a minimum set of moral standards is established within society.
Finally, I must describe the relationship between accounting and the concept of themarket based on the interpretation of the invisible hand mentioned in the introduction. It
is usually interpreted that the function of accounting information is to provide useful
information that contributes to the rational decision-making with market participants,
based on orthodox price theory. However, in the price formation process based on
experimental accounting examined in the paper (Bosch-Domenech and Sunder, 2000)
and in our paper, assuming the trial-and-error negotiation process based on the shape ofthe supply and demand functions and the budget feeling (profit and loss account), thefunction of providing budget constraint information to market participants can beunderstood that the function of simply providing the amount difference information18

based on the balance calculation difference is important. This is related to the functionof double-entry bookkeeping.

Authors
Hidetoshi Yamaji: Research Fellow, Graduate School of Business Administration, Kobe
University
Masatoshi Gotoh: Professor, Graduate School of Business Administration, Kobe
University
Yoshinori Yamakawa: Visiting Professor, Kobe University

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