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Behavioral Economics and Human Irrationality: What Monkeys Can Tell Us

April 10, 2012

The Wall Street Journal profiled economist Yale psychologist Laurie Santos and her work on the origins of human irrationality. Santos, who co-published a study funded by the Russell Sage Foundation, conducts experiments with Capuchin monkeys in her lab to observe if systemic decision-making errors like loss aversion extend beyond the human species. Her research has produced some surprising results:

In one experiment, they gave each monkey a wallet filled with 12 flat aluminum tokens, monkey money that the animals could trade for food. Right away, the scientists saw the similarities to human behavior. When researchers slashed the price on certain foods, the monkeys sought out the best deal. They also typically spent all their cash at once and didn't bother to save.

Then researchers decided to test a more complex economic theory which shows that people do not judge price in a vacuum. Sitting with the team at the coffee shop, Dr. Santos could see how the concept worked in her own life. Many days, she feels guilty about spending $2.20 on a cup of coffee. But when she looks up at the chalk board listing drink prices, the Nutella Latte goes for $3.85 and the Ginger Snap is $4.15. "My $2 cup doesn't seem as expensive anymore," she said.

Monkeys make similar assessments. In one experiment, a researcher showed a monkey two pieces of apple but handed over one in exchange for a token. A second researcher showed one piece of apple and gave the slice to the monkey for the token. The monkeys strongly preferred to trade with the second researcher. They did not like being offered two apple pieces and then only getting one.

For more information on this line of inquiry, see Santos' RSF-funded study: "How Basic Are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior." Here is the abstract:

Behavioral economics has demonstrated systematic decision-making biases in both lab and field data. Do these biases extend across contexts, cultures, or even species? We investigate this question by introducing fiat currency and trade to a colony of capuchin monkeys and recovering their preferences over a range of goods and gambles. We show that capuchins react rationally to both price and wealth shocks but display several hallmark biases when faced with gambles, including reference dependence and loss aversion. Given our capuchins’ inexperience with money and trade, these results suggest that loss aversion extends beyond humans and may be innate rather than learned.

You can also watch Santos explain her work and findings in this TED Talk video: