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Although the processes that underlie sharing others’ emotions (empathy) and understanding others’ mental states (mentalizing, Theory of Mind) have received increasing attention, it is yet unclear how they relate to each other. For instance, are people who strongly empathize with others also more proficient in mentalizing? And (how) do the neural networks supporting empathy and mentalizing interact? Assessing both functions simultaneously in a large sample (N = 178), we show that people’s capacities to empathize and mentalize are independent, both on a behavioral and neural level. Thus, strong empathizers are not necessarily proficient mentalizers, arguing against a general capacity of social understanding. Second, we applied dynamic causal modeling to investigate how the neural networks underlying empathy and mentalizing are orchestrated in naturalistic social settings. Results reveal that in highly emotional situations, empathic sharing can inhibit mentalizing-related activity and thereby harm mentalizing performance. Taken together, our findings speak against a unitary construct of social understanding and suggest flexible interplay of distinct social functions.