This is a post written by Avishai Shuter, and up-and-coming zoologist who lives in his parents house while on the cusp of getting a job with the Bronx Zoo.
Finance is a complex topic- a combination of art and science and other things I’m sure I’m just not aware of. Millions of dollars have been spent on researching how and why peopleÂ behave the way they do with their money. Risk aversions, cost-benefit analyses, and trial-and-error learning have all been studied as motivators behind why people use their money the way they do. Being so complex, its no wonder that no computer has been invented that can accurately predict human financial behaviors. But, what if we have to look no further than to our own cousins for the answer? And by cousins I of course mean monkeys (in your face, Texas Board of Education). Various studies have been done with the hopes of uncovering how far back in our evolutionary history our financial behaviors originated. The results are stunning.
Research done by Yale University’s Dr. Laurie Santos, a primate psychologist, with the help of a group of brown capuchin monkeys (our cousins 35 million years removed), revealed that the financial mistakes we make are deeply rooted within our brains. Dr. Santos created a system in which metal tokens were given to the monkeys, which could then be traded for grapes from researchers. She then created The Monkey Marketplace for her test subjects. In the first part of the experiment, the Monkey Marketplace was made up of two researchers, each offering food for the price of 1 token.
However, one researcher offered 1 grape while the other consistently offered 2. It was observed that the capuchins consistently traded for the better deal (i.e. 1 token for 2 grapes). While this suggested that the monkeys understood the value of the tokens, Dr. Santos wanted to see if the capuchins had the same biases as we do when it came to their own finances. To test this question, Dr. Santos offered the monkeys the equivalents of the following scenarios (feel free to think about what you would do):
I give you $1,000. But, now you must make a choice; either take a risk and flip a coin (you get another $1,000 for heads, but $0 for tails), OR you can play it safe and be given $500 with no risk.
This time, I give you $2,000. Your choice is as follows: either take a risk and flipÂ a coin (you LOSE $1,000 for heads, but for tails you lose 0$), OR you can play it safe and just give me $500 without risking any more.
In the first case, you are choosing how to gain money, while in the second you areÂ deciding how you’ll lose money. However, in both scenarios, if you flip the coin, you have a 50/50 chance of getting $2,000 (and the same odds of getting $1,000) OR you can play it safe and keep $1,500.
This is a common test given to see how risk-averse people are. In the first scenario, most people choose to play it safe (take the $500), while most people choose to take a risk (coin toss) in the second scenario. The difference between gaining money and losing money is the reason why the answers are different to what is essentially the same question (at least as far as the statistics are concerned). It turns out that people hate losing money so much that they will risk more money on the chance that they won’t lose any at all.
After the equivalent scenarios were offered to the capuchins, it was found that, (un)surprisingly, graphs of the monkey tendencies were identical to their human counterparts. So why do people act so irrationally when it comes to their money? It seems that we simply can’t help it. The financial shortcomings of most people were built into our brains long before our modern economies had been established. But can you blame us? We’re only human or capuchins!