June 22, 2005
Capuchin Monkeys Show Same Loss Aversion Economic Behavior As Humans

Monkeys respond to the same odds differently depending on how the choices are presented.

New Haven, Conn., June 20, 2005—The basic economic theory that people work harder to avoid losing money than they do to make money is shared by monkeys, suggesting this trait has a long evolutionary history, according to a Yale University study under review by the Journal of Political Economy.

This phenomenon, known as “loss aversion,” refers to the tendency for people to strongly prefer avoiding losses to acquiring gains. “A large body of studies suggest that losses are more than twice as psychologically powerful as gains,” said author M. Keith Chen, assistant professor at Yale School of Management.

In this study conducted with Venkat Lakshminaryanan, a research assistant in the Department of Psychology, and Laurie Santos, assistant psychology professor and director of the Capuchin Cognition Laboratory at Yale, tufted capuchin monkeys were given small disks to trade for rewards—apples, grapes or gelatin cubes. The researchers said capuchins are well-suited subjects for study since they are relatively large-brained primates, skilled problem solvers, and a close evolutionary neighbor to humans.

In their studies monkeys were given a budget of disks and asked to decide how much to spend on apples, and how much to spend on the gelatin cubes, even as the prices of these goods and the size of their budgets fluctuated. Capuchins performed much like humans do. Capuchins, like humans, react rationally to these fluctuations.

In a second experiment, capuchins were asked to choose between spending a token on one visible piece of food that half the time gave a return of two pieces, or two pieces of visible food, that half the time gave a return of only one piece. Economic theory predicts that consumers should not care which of these outcomes they receive since they are essentially both 50-50 shots at one or two pieces of food. The capuchins, however, vastly preferred the first gamble, which is essentially a half chance at a bonus, than the second gamble, which is essentially a half chance at a loss.

“The goal of this work,” said Santos, “is to learn whether other animals share some of our basic economic decision processes or whether human economic behavior is unique to our own species.”

“The economic view,” Chen added, “says people are aware, rational and in control of their major decisions. Social psychology cuts in the opposite direction, maintaining that people are often unaware of the forces that dictate their behavior. We wanted to understand the interactions of these two things. What we’ve shown is that capuchin monkeys look remarkably like us; making rational decisions in many of the same settings that humans get right, but also make many of the same mistakes we make.”

Their work provides an evolutionary spin on the current debate about why Americans do not save enough for retirement or put enough of their savings into the stock market. “Although the stock market offers a better rate of return than investing in safer financial products, such as bonds, people tend to experience stock market fluctuations through the biased lens of loss aversion, a lens that appears to be shared with other primates,” Santos said. Chen added, “We are fighting tendencies that may be biologically hard-wired.”

We are more like monkeys that most of are willing to admit. Resistance to the theory of evolution is just one manifestation of that reluctance.

To learn about work done on humans with loss aversion read about the classic experiment on risk aversion done by Kahneman, Knetsch, and Thaler with coffee mugs. Basically, people value objects that they own more than objects that they could buy. Also, see the Wikipedia Loss Aversion entry. Or see an example that perhaps more closely mirrors the example with the monkeys where different styles of framing choices causes different preferred outcomes.

This whole area of economics calls for attempts to develop methods to compensate for systematic biases in human cognitive processes. For example, to overcome resistance to regulatory changes due to status quo bias loss aversion Lynne Kiesling of Knowledge Problem argues that experiments to demonstrate the effects of policy changes might help reduce the resistance to changes in the regulatory status quo.

Share |      Randall Parker, 2005 June 22 01:35 PM  Brain Economics

odograph said at June 23, 2005 9:26 AM:

I read Thaler's "The Winner's Curse" as everybody in the company was deciding what to do with stock options. It was very interesting to watch both experiment and practice. I now recommend that to anyone starting their career (or "economic life"). I read a number of other books genearlly on human nature and human economic behavior, but I think the best thing is to follow "The Winner's Curse" with "The Blank Slate." That second book has flaws (you sometimes hear one side of an argument) but it drills further into human nature, and non-human economic nature.

After reading those books, my response to the title of this post is "of course!"

Zack Lynch said at June 24, 2005 10:27 AM:


Keep hammering home neuroeconomics research. As I wrote in "economics from the neurons up," neuroeconomics has a very bright and interesting future. Understanding the neurobiology of decision-making will surely impact our legal system in the years to come, as our understanding of choice, dependency and free will are called into question. This has been a major area of focus of Paul Zak's work on the neurobiology of trust which has been supported by the Gruter Institute over the years.

This line of research has broad societal implications, especially for those who believe we can significantly enhance human performance via neurotechnology. Note the fact that natural monkey behavior correlated well with near-optimal computational models. If it becomes possible to not just enable individuals to achieve a more balanced set of cognitive, emotional and sensory acuities that match the high end of natural performance, but to actually go beyond these bio-evolutionarily defined limits, then we will surely be heading towards a neurosociety where we will be faced with a new driver of social complexity that I call the "perception shift dilemma."

But the effects will go far beyond this: to the nature and shape of the firm.

By radically reducing the spatial transaction cost of finding and sharing knowledge, information technology has played an important role in flattening organizations down from their hierarchical, industrial predecessors.

Neurotechnology will also impact the "typical organization" of the firm in its own unique ways. As we learn more about the neurobiology of trust, how people make decisions, and the many other components of human social interaction that go into everything from contract development to dispute resolution, the emotional transaction cost of doing business will drop precipitously. In my research, I have come to believe that we will see a further flattening of organizational structures and the emergence of real heterarchies.

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