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The Sunny Side of an Underwater Mortgage

A Look at the Neurobiology of Social Cooperation

forclosure sale sign in yard of tan house SOURCE: AP/Mel Evans From a biological standpoint, socially cooperative behaviors could be an end in themselves, as far as your unconscious brain is concerned. But financial systems and policies ignoring the often-unconscious human social instincts do so at their peril. The authors offer a few practical steps for reinforcing the “social contract” that might alleviate the growing rift between the financial markets and society.

Consider these stark statistics on the ongoing mortgage crisis in the United States:

Nationwide, 68 percent of U.S. adults own their own homes, and about two-thirds have mortgages. Given recent market trends and financial instability, nearly 20 percent of homeowners owe more on their homes than their properties are currently worth. Studies by First American CoreLogic reveal that about 8.31 million properties were “underwater” at the end of 2008, up almost 10 percent from 7.63 million at the end of September.[1]

CoreLogic predicts about 2.16 million additional properties will sink “underwater” if home prices fall another 5 percent. The problem is the worst in California, Florida and Nevada (Reuters News, March 4, 2009).[2]

If the value of a home becomes less than the mortgage on it, a basic cost/benefit analysis of the tangibles might suggest walking away from the mortgage—even if one could afford to keep paying. Indeed, recent reports indicate that this phenomenon has been growing in frequency around the country. It may be no surprise that foreclosure rates rose 81 percent in 2008,[3] but that figure is only the latest of an uptrend that has been accelerating for over 50 years.[4] Yet the vast majority of homeowners choose to keep paying their “underwater” mortgages. Why?

Though behavioral scientists have been long aware of the importance of the irrational factors in human behavior—Freud wrote in 1937 about defense mechanisms and manifestations of unconscious conflict[5]—economic theories of personal financial decision making have assumed a rational “actor” driven by basic calculations built on dollars and cents.

In the last decade, these “intangible” drivers have finally come to the fore in the study of human “economic” decision-making. For example, the 2002 Nobel Prize in economics was awarded to Daniel Kahneman, a cognitive psychologist who elucidated the psychological asymmetry between risk-aversion and reward-seeking in economic decision making. Here, we re-examine one such “intangible” driver: the biology of social interactions, and assign it a proper place among the factors that make us keep our underwater mortgages and maintain other behaviors that are not accounted for by an individual’s rational cost and risk/benefit analyses.

Perhaps the reluctance of debtors to walk away from their financial commitments reflects a more fundamental (unconscious) need to remain attached to the social fabric?

Although quasi-financial but tangible consequences of walking away from an underwater mortgage, such as damage to credit rating and the logistic, legal, and accounting costs undoubtedly play a role in the decision to stay put, they alone may not account for all the forces that make the overwhelming majority of the underwater mortgage holders stay put. During a recent This American Life episode,[6] radio host Ira Glass interviewed a woman who continued to reside in an unmaintained condo building along with a handful of other owners despite there being 19 vacant units and having the financial means to cut her losses and leave. She replied, “I have an ability to pay… I will do my part to honor my word.” Another interviewee stated, “What would happen if everybody left??… If I leave and foreclose… then the people that are left, are left even more up a creek than they were before… it’s kind of like, we’re all in this together.” These statements suggest that the “social contract” rather than the tangible reward has been a decisive factor in the condo owners’ actions.[7]

In the past, the social contract was examined using traditional social science techniques based on surveys and subjective self-report. Recent progress in social neuroscience, building on advances in imaging technology, shines a new light on the biology underlying the social forces that influence our behavior.

One approach to identifying the effects of social interactions is to examine the effects of their absence, by studying the biology of social isolation. As Atul Gawande asserted in a recent piece in The New Yorker,[8] isolation is one of the most biologically deleterious states of human existence. According to recent neurobiological research, prolonged isolation is associated with diverse but uniformly negative medical and psychological outcomes, including reduced ability to recover from disease, obesity, depression and anxiety.[9],[10]

At the other end of the spectrum, a growing body of literature highlights the biological rewards of social cooperation. For example, dopamine release, the “feel-good” rush associated with drug addiction and euphoria, has been associated with reciprocity and cooperation among non-relatives.[11] In other words, from a biological standpoint, socially cooperative behaviors could be an end to themselves, as far as your unconscious brain is concerned.

Back to the underwater mortgages: Perhaps the reluctance of debtors to walk away from their financial commitments reflects a more fundamental (unconscious) need to remain attached to the social fabric? As the famous Polish anthropologist Bronislaw Malinowski noted in his classic Argonauts of the South Pacific, commerce itself is a highly social endeavor.[12] Malinowski studied the “Kula,” a symbolic system of shell exchange of the Massim tribes in the South Pacific islands during the First World War. His main finding was that the Kula was a social economy built on reciprocity. The material possessions (armshells and necklaces in this case) were simply a conduit for fostering positive reputations and meaningful social connections, activities that we now know to be directly reinforced by the release of the “feel good” neurotransmitters—i.e. dopamine.

A paper published in the journal Neuron last year explored the similarities between social approval and monetary reward on a neural level.[13] The researchers found that in both cases common pathways are activated (a “common currency” so to speak) and that there are likely reward pathways (in the medial pre-frontal cortex) uniquely activated by social approval that ultimately contribute to dopamine release. In other words, the brain is likely hard-wired to seek social approval through cooperative interactions.

Given the growing body of evidence of the biological necessity of human cooperation, the weakening of the unwritten social contract that links individual biology to mass behavior may lead to large scale unanticipated complications, such as those facing the United States today. The unexpected adverse effects of the complex and untested financial instruments such as credit-default swaps and collateralized debt obligations may be enabled by the anonymous marketplace in which they have been conceived.

The increasing distance between parties involved in financial transactions and the increasing number of intermediaries (often virtual and/or disembodied through technological advances) between a buyer and seller reduce accountability while breeding anonymity. It is likely that it is less costly for the brain to lose approval or experience isolation from a vaguely known virtual brokerage accountant than from the local banker who has mutual social connections. If biologically-driven self-regulation is extinguished, the only support left for the sustainable financial behaviors is external regulation and enforcement, which is inadequate—derivative trading being a recent and notable example—as there are never enough resources to enforce rules that society is not positively and instinctively motivated to uphold.

The ever-growing stream of financial scandals involving the breach of trust is an example. If the world’s equity value is determined largely by the trust in the underlying financial system of exchange, rather than intangible assets, the loss of the social contract could spell the end of the globalized financial markets as we know them. Though regulation has been offered as the panacea for corporate malfeasance, this may not be practical in the absence of self-regulation by social contract. What portion of the world’s daily financial and equity transactions is or can be actually audited? It is likely a minority.

We would like to propose a few practical steps for reinforcing the social contract despite rapid changes in financial markets and unfettered globalization. First, the relevance of neurobiology should be recognized by the financial and industrial policymakers. Second, since data processing and communications technology are the major drivers of complex financial markets and globalization, they may likewise be harnessed to correct resultant social damage. For example, reducing the number of intermediaries in, and restoring human interaction to, financial transactions—such as refinancing underwater mortgages—whether through webinars, Skype, or actual-human interaction, would help reestablish the social reward of holding up one’s end of the bargain. Imagine smart technology employed to visibly maintain the ties between all agents involved in derivative products, from the homeowner to the lender to the insurer, trader, banker, and ultimate tiers of investors. Further, investing financial systems with mechanisms to apportion tokens of social approval upon clients who uphold contracts may enhance their innate tendency to do so. Finally, independent research, applying the wide array of the deceptively “academic” basic social neuroscience data, to the problems on hand, should be encouraged through the established funding mechanisms, such as the National Institutes of Health or the Congressionally Directed Medical Research Programs, along the lines of “translational” research in molecular biology and other purely “medical” topics.

The main focus throughout all of these interventions is recognizing and using the existing instinctive prosocial individual behaviors to benefit society rather than expend societal resources on the self-destructive battle against human biology. It is true that contemporary society—mortgages and all—is a far cry from the environs in which humans evolved. However, turning away from fundamental neurobiological human drives, such as the need for social approval and cooperation, might ultimately sink us all.

Arthur Robinson Williams, M. A. (Bioethics), is a fourth-year medical student and Daniel D. Langleben, M.D. is an Associate Professor of Psychiatry, both at the University of Pennsylvania School of Medicine.


[1] First American CoreLogic, “First American CoreLogic’s Negative Equity Data Report,” December 11, 2008.

[2] Stempel, Johnathan, “One in Five US Mortgage Borrowers are Underwater,” Reuters, March 4, 2009.

[3] Christie, Les (2009), Foreclosures up a record 81% in 2008, “Filings continued to soar through the end of the year – and there’s no relief in sight for 2009,”, January 15, 2009.

[4] Elmer, Peter J. and Seelig, Steven A., “The Rising Long-Term Trend of Single-Family Mortgage Foreclosure Rates,” Working Paper, Federal Deposit Insurance Corporation, Division of Research and Statistics, 1998.

[5] Freud, A., “The Ego and the Mechanisms of Defence,” London: Hogarth Press and Institute of Psycho-Analysis, 1937.

[6] Glass, Ira., “Scenes From a Recession,” This American Life #377, Chicago Public Radio, March 27th, 2009.

[7] Rousseau, Jean-Jacques, “The Social Contract, or Principles of Political Right,” 1762.

[8] Gawande, Atul, “Hellhole,” The New Yorker, March 30th, 2009.

[9] Karelina, K, et al. “Social isolation alters neuroinflammatory response to stroke.” Proc Natl Acad Sci U S A. 2009 Apr 7;106(14):5895-900.

Wallace, DL, et al., “CREB regulation of nucleus accumbens excitability mediates social isolation-induced behavioral deficits,” Nat Neurosci. 2009 Feb;12(2):200-9.

[10] Fone KC, Porkess MV., “Behavioural and neurochemical effects of post-weaning social isolation in rodents-relevance to developmental neuropsychiatric disorders,” Neurosci Biobehav Rev. 2008 Aug;32(6):1087-102. Epub 2008 Mar 18.; Herzog, CJ, et al. “Chronic Social Instability Stress in Female Rats: A Potential Animal Model for Female Depression,” Neuroscience 159 (2009) 982–992.

[11] Rilling, J., D. Gutman, et al., (2002). “A neural basis for social cooperation,” Neuron 35(2): 395-405; Glocker, M., Langleben, DD, Ruparel, K, Loughead JW, Gur, RC, Sachser, N (2009), “Baby Schema in Infant Faces Induces Cuteness Perception and Motivation for Caretaking in Adults,” Ethology 115(3): 257-263.

[12] Malinowski, B., Argonauts of the Western Pacific (1922).

[13] Izuma, K; Saito, DN; Sadato, N., “Processing of Social and Monetary Rewards in the Human Striatum,” Elsevier Inc. Neuron (58), 284-294, 2008.

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