Monkeys Exhibit the Same Economic Irrationality As Us

grrlscientist writes "Laurie Santos is trying to find the roots of human irrationality by watching the way our primates make decisions. This video documents a clever series of experiments in 'monkeynomics' and shows that some of the stupid decisions we make are made by our primate relatives too."

Comments

seems they've been watching government

[rcpitt]

mistook the legislature for a barrel of monkeys

It's called a Bonzi Scheme

[Drakkenmensch]

So you have four monkeys with bananas, and they give their bananas to the first guy, right? Then the four monkeys each look to recruit four more monkeys, and get their bananas...

Re:Meh.

[ultrabot]

So they buy Apples too, huh?

Yeah, I think I saw a monkey holding a phone in a weird fashion the other day.

And another monkey reading a book on objective C.

One big difference

[DriedClexler]

I think one significant difference between humans and monkeys, is that if you convince monkeys that little tokens can be traded for grapes, but then "suspend convertibility", they will go -- pardon the term -- apeshit.

In contrast, if you convince humans that their paper banknotes can be redeemed for an indicated quantity of gold and then suspend convertibility, they handle it pretty well.

I'm in talks with some central banks to try the experiment again...

Re:One big difference

[ElectricTurtle]

Your example is not parallel, as you assume that the transition from tokens for grapes to tokens for nothing is the equivalent of silver certificates for whatever you want to purchase transitioning to fiat currency for whatever you want to purchase. Let me see if you pick up the key element there...

...

That's right, people still get whatever they want to purchase. That they cannot trade a certificate for a set amount of precious metals is immaterial to most people, as precious metals themselves are of little direct utility outside of certain industries and therefore are as representational as the fiat currency itself.

This is not to say that I don't wholly support trying to accumulate concentrations of materials that have a real value irrespective of government policy (per se).

Irrational Market Behavior

[catchblue22]

Many of the economic theories that our governments have been adhering to over the past few decades have as a core premise that overall, markets behave rationally. Specifically, the "Efficient Market Hypothesis", in which it is proposed that the price for a good or service ALWAYS reflects ALL available information, implicitly assumes that market actors are acting rationally. And the "Efficient Market Hypothesis" is at the core of most of the mind-blowing mathematical economic models that many of our society's decision makers use to make economic decisions. The question is: If humans naturally make irrational decisions because we are biologically predisposed to do so, then how can markets be assumed to behave rationally? There have been striking experiments done on seemingly rational MBA students in which they make staggeringly irrational economic decisions. The monkey experiments seem to reinforce our predisposition to act irrationally.

In other words, the above research points towards falsifying the primary economic ideology that has been used to govern America since Reagan. This is no small matter. It affects all of our lives. And yet, if you listen to Republicans lately, they are still calling for policies derived from these economic models, policies such as tax cuts for the rich, working towards a reduction in governmental economic power, so as to let the power of the private sector and the magical invisible hand of the market place work their economic miracles. Myself, I am more of a Keynsian. I think the market is useful, but it can run amok if not attended to by a government powerful enough to guide it towards the public good.

Here is an excellent episode of the TV series Nova called "Mind over Money", which lays out many of my arguments clearly. The video only streams to the US.

Re:Irrational Market Behavior

[dollarwizard]

Specifically, the "Efficient Market Hypothesis", in which it is proposed that the price for a good or service ALWAYS reflects ALL available information, implicitly assumes that market actors are acting rationally.

Actually, it's not a good or service that the EMH refers to, but rather the market price of publicly-traded equities, bonds and commodities in an environment in which there are relatively low transaction fees. You should read more here before posting about it, although since you got a rating of "5" maybe only cursory knowledge is required?

Re:Irrational Market Behavior

[GigsVT]

In other words, the above research points towards falsifying the primary economic ideology that has been used to govern America since Reagan. This is no small matter.

No, it doesn't. It starts with a basic assumption that we make irrational economic decisions. You are begging the question.

"Rationality" is based on personal, usually unknowable, factors. It's impossible to prove or disprove the rationality of an economic decision since there's no way that you can take psychological factors, wants and needs into account, some of which may not even be fully known to the subject.

Re:Irrational Market Behavior

[catchblue22]

I would argue that the intellectual basis of neo-conservative economics comes mainly from the "Rational Market Hypothesis", and is thus largely based on the assumption of rationality. From the assumption of market rationality, there have been derived mathematical models that would make many mathematicians quiver. If you arranged a group of all the people in the world who actually understand these models, I suspect you could fit all of their names on a single sheet of paper (perhaps with a small font). The ideologues take the results or predictions of these models, as derived by Nobel Prize winning economists, and fit them into their ideologies. Then politicians like Reagan listen to their ideological advisors and implement their plans and models. I doubt Reagan himself had any formal understanding of economics beyond first year econ. courses.

Re:Irrational Market Behavior

[vtcodger]

***The intellectual basis of all economics rely on rationality of actors, Keynesianism included.***

In no way shape or form. You need to read up on Keynesianism and to do a little work on the difference between rationality and predictability. It seems to be possible to predict behavior (especially, but not limited to, foolish behavior) without understanding it and certainly without thinking it is rational.

Re:Irrational Market Behavior

[jbeach]

Disagree that Keynesian economics relies completely on "rationality", at least as defined as "free individual rational choice". Keynesian policies such as FDR used to help the US out of the great depression involved a massive increase of government spending to give money and jobs to the poor and middle class, regardless of deficits - and NOT leaving things to the "invisible hand of the free market". Which you can guess how I feel about by my sig.

And the current bubble collapse we're still suffering from, the housing market, is more adequately described as a Milton- Friedman-esque bubble. As it certainly was not produced by the Bush administration following Keynesian policies.

Re:Irrational Market Behavior

[camperdave]

how is it that the tendencies of these organizers are always good? Do not the legislators and their appointed agents also belong to the human race? Or do they believe that they themselves are made of a finer clay than the rest of mankind?

Well, the electorate chooses the legislators, and they are supposed to be chosing those of a finer clay to govern.

Re:Irrational Market Behavior

[dkleinsc]

The Keynesians do have one strong point in their favor: there's a lot of evidence that Keynesian spending helped during the Great Depression. I mean, look at what happened to the national debt during WWII, when the US managed to crawl out of the mess they were in:
http://upload.wikimedia.org/wikipedia/commons/3/3b/USDebt.png
Bush and Obama haven't gone anywhere remotely near where FDR went to finance that war.

The EMH supporters, on the other hand, have not had their theories demonstrably having the effects they expected.

Of course, there's another way of looking at this: all software sucks, all hardware sucks, all economic theories suck. We haven't come remotely close to figuring it out.

Re:Irrational Market Behavior

[L0rdJedi]

Disagree that Keynesian economics relies completely on "rationality", at least as defined as "free individual rational choice". Keynesian policies such as FDR used to help the US out of the great depression

FDRs policies did not get us out of the Great Depression (which was only called that in the US). What got us out of the Great Depression was getting into a war. Pulling millions of men out of the labor market had the obvious effect of lowering unemployment.

Nobody ever got rich by spending more money than they have. If an individual can't get out of debt that way, it is irrational to believe that a nation can. In fact, no nation has ever done it and ever single nation that tries it ends up in revolution or has their money inflated out of existence.

The current bubble collapse we're experiencing was caused by policies provided by Jimmy Carter and Bill Clinton (under a Republican congress). So at least there I agree with you.

Re:Irrational Market Behavior

[catchblue22]

Economists like Milton Friedman and his ilk would put it that in a perfect free market economy there is no such thing as a stock market bubble. There is no such thing as a housing bubble. They would say that any bubble like behavior is due to "distortions" in the market place that cause their perfect system to malfunction. They base these assertions on their assumption that the market always places the best price on a good or service based on all available information. Thus a bubble is impossible. They assume that people buy houses to satisfy their own need for accommodation and to maximize their future net worth. What they miss is that, in seeking to maximize their net worth, individual market actors, and the market itself will buy houses because the prices are going up. They will be afraid that they will be priced out of the market. They will be exuberant because they seem to be making lots of money on rising real estate prices, and they will borrow obscene amounts of money to jump into the rising market, forcing prices up even further. The prices will keep rising for a while, reinforcing the irrational belief that the inflated market is based on real supply and demand factors. Eventually, the prices crash. Since people were buying because the prices were rising, when the prices stop rising, demand dries up, causing the prices to crash.

The situation above has played out in the American real estate market. And it has played out in the stock market many times. Such behavior is inherently irrational. If the market itself, and not just the individual actors displays irrational behavior, then I would argue that the "Efficient Market Hypothesis" is falsified.

Rationality" is based on personal, usually unknowable, factors. It's impossible to prove or disprove the rationality of an economic decision since there's no way that you can take psychological factors, wants and needs into account, some of which may not even be fully known to the subject.

No. We are talking about the rationality of the market itself, and not necessarily about just the individual actors. The assumption is that the market will always set the best price based on supply and demand. The assumption is that the market price is always the most rational price based on all available information. Bubbles are irrational phenomenon. The price is going up because the price is going up. If we have built into our brains inherent irrationality, and if all actors in the market display this to some degree or another, then the market is going to act irrationally, since market behavior is just the overall behavior of all individuals.

Re:Irrational Market Behavior

[toadlife]

FDRs policies did not get us out of the Great Depression (which was only called that in the US).

By the standard definition of a depression (a period of rapid economic contraction) the depression ended in 1933, as by that year the economy was growing at an inversely proportional rate to it's decline between 1929 and 1933. High unemployment still remained for many years, but news job can only be created so fast. 1929 was the peak of a giant credit bubble, which was similar in size to the credit bubble that burst in 2008. It's only logical that it took many years for jobs to recover, as much of the wealth right before the bubble burst was credit based, i.e. *fake*.

The current bubble collapse we're experiencing was caused by policies provided by Jimmy Carter and Bill Clinton (under a Republican congress). So at least there I agree with you.

Nonsense. Carter had nothing to do with it. The Gramm-Leach-Bliley Act of 1999 is primary catalyst of the 2008 credit bubble. Clinton is certainly responsible for signing it. Even Greenspan, one of the primary drivers behind the free-market mania of the 90's admits today that it was a giant mistake.

Re:Irrational Market Behavior

[VortexCortex]

The market itself is the fallacy.

Company X earns Y amount of profit annually.
Company X's stock market price increases or decreases due to market perceptions.
Company X still earns Y amount of profit annually, but its its stock price reflects a different value.

Yahoo's stock price raised when Microsoft wanted to purchase them, and tanked after Yahoo's refusal to sell;
This affected stock price of Yahoo even though they still earned the same profit annually...

Re:Irrational Market Behavior

[drsmithy]

Nobody ever got rich by spending more money than they have.

Lots of bankers would disagree.

Re:Irrational Market Behavior

[sjames]

Or you could get really incredibly radical and try injecting the stimulus at the bottom of the socio-economic scale for a change. That, somehow, never gets tried.

Re:Irrational Market Behavior

[Antisyzygy]

Right around the 1920's, the top 1 percent wealthiest people had 70 percent of the money in the United States. That disparity in wealth is fast approaching again. The problem is that the majority of us owe debts to the "wealthy" for everything from houses to cars to education costs to medical bills. Not enough money comes our way to pay it back because part of the nature of being "wealthy" and used to it is to retain as much of your wealth as possible. People assume that wealthy people blow all their money on services and products, but this is simply not true. The cost of living over income is WAY higher for the average person than it is for those that make half a million plus a year. You can only eat so many lobsters and drink so much wine. I understand every once in awhile you see some idiot blow all their wealth, but this doesn't create more wealthy people that it lost. Generally people move down in wealth class rather than up. The only way to solve the problem short of exterminating or starving people is to employ as many people as possible and pay them good wages. It would need to basically be funded by the government through taxes on the top 1-10 percent since financial institutions as well as manufacturers and IP corps are simply not hiring even with the recent spike in their profits. Massive government hiring is precisely what happened during the recovery from the Great Depression and also during WWII. These essentially fixed the problem for the last 50 years. Its about time it happens again because we need to hit the rest button on the wealth disparity in this country.

I use the term "wealthy" not because I am some tin foil hat nut job that believes in the illuminati or whatever. I use it as a blanket term for financial institutions, wealthy families/individuals, and even government.

Re:Irrational Market Behavior

[nine-times]

I'm not sure if that's quite the case - the economic ideology of the free market and the economic ideology of centralized control are *both* confounded by irrational humans.

Well it's a bit more complicated than that, isn't it?

Because one of the ideas that has worked out pretty well for humans is the idea of careful distribution of power (checks and balances). This idea would hold that you don't want centralized power in a government or in large corporations, and in fact you actually want tension between large private organizations and large public organizations. The two can ideally balance each other out. So in this view, you want a strong market with good competition, but lightly regulated with a public interest in mind.

However, the prevailing "conservative" view (which is not conservative, but is actually fairly radical) is basically to do away with the checks and balances that governments can provide through regulation, and instead concentrate *all* power in whichever body has the most economic power. From there, magical "free market" forces will sort everything out, because supposedly economic power cannot be abused.

Re:Irrational Market Behavior

[catchblue22]

FDRs policies did not get us out of the Great Depression (which was only called that in the US). What got us out of the Great Depression was getting into a war. Pulling millions of men out of the labor market had the obvious effect of lowering unemployment.

My god, is the intellectual level of our society so low that posters can blatantly contradict themselves and not even realize it?!!

The above poster claims that FDR's programs (I am assuming he means public works expenditures) did not get us out of the Great Depression. It was the war that pulled America out instead. But what is a war, except a huge public works program, a massive series of government expenditures used to build weapons and to pay soldiers. It is indistinguishable economically from say building the Golden Gate Bridge or the Hoover Dam, except that the products of war are more destructive. The real thing to notice is that war expenditures seem to be the only type of public works program that America will accept in any great amount.

Rational for the species or the individual?

[spun]

Modern economic research shows that human beings are not primarily motivated by self interest, but by ideals of fairness and reciprocity that benefit the species as a whole. What is rational for the individual may not be what is rational for the species, and vice versa. Evolution operates on more than just an individual level, in fact what makes an individual "more competitive" in a simplistic sense might not be what gets selected for. For instance, those feelings of fairness and reciprocity most of us have. In an experimental game called the Dictator game, one person is given a large sum of money. They can give all to none of it to player B. What they do give is multiplied by a small percentage and then person B can give all to none of it back to person A, but the gift is again multiplied. Well, rational actor theory says the most rational choice for each individual is to keep ALL the money given to them. The most rational act for the species in general is for person A to give all the money to person B, and person B to give a proportional amount back, because this maximizes gains for the species as a whole. And, surprise surprise, this is close to what most people do, exchanging not all but a large chunk of the money and increasing overall reward.

Also, given imperfect information about the world, perhaps just doing what has worked up until now for your ancestors is not a bad strategy in general, especially for the less intelligent.

Re:Evidence that monkeys are smarter

[RichMan]

You ever see a human with a Zune?

As the only /.er who actually watched the video...

[dollarwizard]

...here's my assesment:

First of all, you need to skip to minute 9 before you start getting any info. And if you read the book Super Freakonomics, you already know everything in the 20-minute video:

- Monkeys steal money from each other, as do humans.
- Monkeys are terrible savers, as are humans.
- Monkeys are poor calculators of risk/reward, as are humans. (She goes on for about 8 minutes belaboring this point.)

And the goal for us as humans is to use our logic to overcome our emotions. There, I have now saved you 20 minutes of your life!

Old News

[Anonymous Coward]

She published this in 2006.

Chen, M. K., Lakshminaryanan, V. & Santos, L. R. (2006). The evolution of our preferences: Evidence from capuchin monkey trading behavior. Journal of Political Economy, 114(3). 517-537

Confirmation Bias?

[cephus]

I love reading about an experiment in which a question is posed and then the reults are interpreted strictly within the context of that specific question without considering other possible explanations for the observed behavior.

In this case, the guy on the left always cheated while the guy on the right sometimes cheated but sometimes completed the trade as advertised. So why isn't the conclusion that monkeys have a sense of fair play? So they choose not to deal with the guy who always cheats. Or maybe the conclusion is that happy outcomes are remembered for longer than unhappy ones, so that the monkey's memory says that dealing with the guy on the right produces a better outcome more often?

Failing to consider other explanations seems ... well ... irrational.

Why? Do they get Best Buy extended warranties too?

[bADlOGIN]

Although come to think of it, I do wonder how many bananas Best Buy get's for a crappy Sandisk MP3 player w/ 3 year extended warranty....

Nah. That would require me to RTFA.

Re:Evidence that monkeys are smarter

[oldmac31310]

I did once. She was an animal.

I always laugh at these insults

[gurps_npc]

They take a brilliant, evolved decision making process and call it "irrational".

No. The decisions you think are "irrational" are often in fact VERY rational - based on a 'wider' world.

For example, the gambling thing does not consider TRUSTWORTHYNESS.

Taking the gamble that the odds say is good, assumes the odds are accurate. Once you understand that the gamble may be a con and the gamble may be fake, then YES, you should treat the 50/50 chance to gain as less interesting than the 50/50 chance to lose.

This means the the 'absolute" bias, and Loss Aversion are NOT stupid irrationalities, but in fact a logical decision due to the knowledge that people are liars and cheats.