Capuchins and humans are both more scared of losing than economics would suggest.

A group of Yale researchers studying the origin of irrational decision-making found that choosing impractically isn’t a behavior exhibited only by humans. Our evolutionary cousins, capuchin monkeys, exhibit the same tendency with respect to loss aversion, or the tendency to strongly prefer avoiding losses rather than acquiring gains.

The findings, published in the Journal of Political Economy, indicate these biases are innate in primates and have existed since before capuchins and humans split 40 million years ago.

“Some of the most deeply ingrained economic behaviors turn out to be very, very ancient and hardwired parts of our decision-making processes,” said Yale economics professor and the study’s lead author, Keith Chen. “If I showed a string of capuchin monkey data to an economist, he couldn’t, with any statistical test, tell the difference between a capuchin monkey and your average American stock market investor.”

In every 20-year period of American history, Chen said, a person who invested in stocks rather than bonds would end up making far more money. This is true, he said, even if the person had invested the Monday before Black Tuesday in 1929. Stocks, while riskier, always do better in the long run than the slowly-but-steadily appreciating bonds.

However, the average investor has puzzled economists by choosing to invest far more in bonds than is profitable, Chen said.

This odd phenomenon of risk aversion is one example of loss aversion—guarding against losing what you have over going for what you can get.

In a similar experiment, the Yale researchers trained monkeys to use money by providing them with coins and teaching them to purchase food from different vendors. One seller showed the monkey two apple slices, but when the monkey paid, half of the time the seller would only give the monkey one slice. Another showed one apple slice but half the time provided a second, bonus slice.

Instead of consistently buying from the vendor who presented the stronger visual cue of two apples or realizing that the expected return from either vendor was equal and buying from both vendors, the monkeys regularly chose the one who gave the bonus.

“Loss aversion behavioral economics intuition says, ‘Well, wait a minute: One of these guys half the time delivers you a loss, whereas the other guy half the time delivers you a gain,’” Chen said. “And if you like gains and you dislike losses, in fact the monkeys should prefer trading with the guy who walks around only displaying one piece of apple. And in fact that’s exactly what they do.”

Chen further affirmed that we are no better than monkeys by saying our similarities are quantitative as well as qualitative, with capuchins weighing loss almost exactly as much as we do.

“Not only in types of behavior but even in levels of behavior,” Chen said, “these monkeys look just like us.”

Originally published May 15, 2006


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