Monday, August 15, 2005

Money-hungry capuchins are helping explain human behaviors

In recent studies, scientists tracked the behaviors of shoppers and investors as they spent money snapping up things on sale or investing in low-risk transactions.

And when these same consumers noticed that one shopper was getting a special deal, they reacted in a very human way: by flinging their money back in the seller's face in a righteous show of anger.

But these study subjects weren't human -- they were a troop of capuchin monkeys, native to the jungles of South America.

Scientists say the capuchins' "animal behavioral economics" are bringing new insights to everything from the stock market to the tit-for-tat reciprocity of daily human life.

"You can't explain everything that happens in economics by market forces -- you have to look at the human animal. And as soon as you look at the human animal, you notice that we have a lot in common with other animals, too," said Frans de Waal, a professor of psychology at Emory University and director of the Living Links Center at Emory's Yerkes National Primate Research Center.

Until fairly recently, economists believed the marketplace worked on a simple principle: everyone was out to maximize their own personal gain. But that theory doesn't quite fit with reality, according to Yale University primate researcher and professor of psychology Laurie Santos.

"For example, there's the curious problem of why humans don't put as much money into stocks as they do into bonds," she said. Over the long-term, stocks always outperform bonds, even though short-term dips in an individual stock's value are common. With stocks "you're more likely to look in your portfolio and say 'Oh, I lost $1,000 this month' -- even though you still make more money over the course of a year than you would with bonds," Santos said.

So why don't humans make the rational choice and play the stock market more?

The answer lies in the "reference point" -- an irrational habit that humans have of gauging economic performance against what happened yesterday or last month, or by the type of success or failure a neighbor might be having. Many economists have suggested that this illogical tendency is simply a product of human society, easily changed.

"Is this really the case?" Santos wondered. "Or is it something that's much more deeply ingrained?"

She turned to our primate cousins for help.

Working with a group of capuchins in her Yale lab, Santos and her colleagues first spent a few weeks training them to the concept of "money" -- in this case aluminum tokens that were exchangeable for food. "Even though we trained them, the monkeys spontaneously understood on their own that the market was 'fungible' -- that they could buy anything with the token -- grapes, apples, whatever was offered," she noted.

What's more, they also spontaneously latched on to the simple rules that drive the human marketplace. For example, if the researchers started swapping a token for one piece of apple but two grapes (essentially a "50 Percent Off All Grapes!" sale) the monkeys immediately chose to spend their money where it bought the most -- grapes. "It's what an economist calls a 'shift in consumption,'" Santos said.

The capuchins were also in tune with the "reference point." In one experiment, monkeys were given two options in spending their token: one researcher who offered just one piece of apple but sometimes rewarded the monkey with a "bonus" second piece; or a second researcher who initially showed the monkey two pieces but sometimes delivered just one apple slice in exchange for the token.

Either way, it was a gamble: the monkey was guaranteed at least one slice -- but might get two.

However, the capuchins overwhelmingly rejected transacting with the researcher who presented them with the two apple slices. The reason? "If they think they are going to get two pieces of apple, one piece just doesn't seem that great," Santos said. "But if they think they are going to get one piece, then getting two pieces seems really awesome."

This behavior -- a disproportionate fear of loss versus gain -- is exactly the reason humans prefer bonds to more lucrative stocks, she said. Her team plans to publish the study results soon.

Story here.

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