On a island off the coast of Puerto Rico, a fascinating simian experiment has taken place. The results could give us a deeper understanding of behavioural economics, the psychology of risk and may explain why our economies suffer from periodic financial crises.
One of those trading with monkeys was Laurie Santos, a professor of cognitive science and psychology at Yale University. “We could use that set up to really ask, do the monkeys pay attention to things like price - are they trying to maximise their monkey token dollar?” she explains.
“What we found surprising was, with very little training, the monkeys shopped at experimenters who gave them food more cheaply. So if they got twice as much food for one token with an experimenter, the monkeys shopped there more often.”
The monkeys also displayed other human-like traits such as opportunism. They tried to grab any tokens that were left lying around while the scientists were not paying attention. Primates engaging in some monkey business no doubt. Nevertheless, it also showed that the monkeys considered the tokens as valuable items.
However, it is the monkeys’ attitude to risk that might hold the most intriguing lessons for us humans.
The researchers introduced an element of choice into their experiment. They could trade with one of two people. One would give them two pieces of food, grapes in this case, for their token, every time they traded. It was a no-lose, safe option.
To gamble or not to gamble - which option would you choose?
Most people will go for the safe option - they take the $2000. That is also what monkeys do.
So far so good. Apes and monkeys are, after all, our nearest animal relatives. We share a common evolutionary history. However, once the experiment was adjusted so that the monkeys had the same options but from a different starting point, something fascinating happened.
Professor Laurie Santos explains “So the monkeys come in and it looks like both experimenters [are] kind of holding three [grapes] so this monkey brain is probably thinking ‘oh there’s a chance to get three.’ One guy is safe, he does the same thing every time...the monkey trades with this guy [and] he’s holding three but he takes one away and gives the monkeys two so it’s kind of a sure loss - a small loss but a sure one,” says Santos. “The second guy is risky - sometimes he gives the monkeys all three but sometimes he takes two away and only gives the monkeys one.”
Again, let’s look at that another way: You start with $3000, now you have a choice. Either you take a guaranteed loss of $1000 leaving you with only $2000 or you gamble. If you gamble half the time, you will lose $2000 leaving you with just $1000 but half the time you will not lose anything. What would you do?
When stocks and shares crash or house prices collapse, you might expect people to become more cautious. In fact, they take more risks. People will hold onto stock that is losing value, speculating the price will rise again, because we can’t bear the thought of having less than we have now. This is loss aversion.