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

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...

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

[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

[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

[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.

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!