What does this monkey business tell us about human investors?

A US psychologist’s experiments with capuchin monkeys offers further evidence humans should look to invest in a way that strives as far as possible to remove emotional and instinctive biases from the equation


Andrew Evans

Andrew Evans

Fund Manager, Equity Value

Did Alan Partridge miss a trick?

In one episode, wildly throwing ideas for a new television programme at a BBC commissioning editor in the hope one might stick, Steve Coogan’s tragicomic creation finishes an increasingly desperate list that had included ‘Arm-Wrestling with Chas ‘n’ Dave’, ‘Inner City Sumo’ and ‘Cooking in Prison’ with a forlorn: “Monkey Tennis?” Should he have tried ‘Monkey Economics’ instead?

For it turns out this is a thing.

As this eye-opening Discover article from 2008 explains, research by US psychologist Laurie Santos suggests monkeys possess “many of the quirks and foibles once considered uniquely human” – and apparently this extends into an area we are particularly keen on, here on The Value Perspective: behavioural finance.

Humans do dumb things

Explaining why she chose to focus on mistakes made by monkeys to better understand human fallibility, Santos says: “Humans do a lot of systematically dumb things. The way we categorise things is biased and leads to stereotypes. Our judgements are biased when we deal with finances, but why? We have hypothesised maybe some of these errors were built in from the beginning, which is why they are so hard to get rid of.”

Take ‘loss aversion’ – or, more formally, ‘Prospect theory’ – which we have discussed before in articles such as All-too-human instincts.

Developed by the founding fathers of behavioural economics, Daniel Kahneman and Amos Tversky and covered in some detail in the latter’s 2011 classic, Thinking Fast and Slow, this is the idea that people tend to feel the pain of losses twice as keenly as they feel the pleasure of gains.

To assess if such a behavioural bias might also be hardwired in the brains of her capuchin monkey research subjects – who had actually been trained to trade tokens for food – Santos devised an experiment where they had to deal with two ‘salespeople’.

One looked as if they were offering one piece of apple but, when the monkey ‘paid’ them, that salesperson also delivered a second piece – a bonus that made for a happy monkey.

By contrast, the second salesperson shaped up to offer three pieces of apple but this time, when the monkey paid up, they took a piece away.

In practice, as they received two pieces of apple in each instance, the monkeys should not have cared and so traded randomly yet Santos found they clearly preferred to trade with the researcher who was giving them the bonuses and avoid the one who was giving them the losses.

Unexpected bonuses are preferred

All of which led Santos to conclude: “Economists assume our decisions are based on what is going to give us the most wealth or happiness. But the monkeys violate the assumption that all they care about is the amount of food they get. They also seem to care about how the amount of what they get differs from what they expected.”

Santos and her team did a similar study in the context of risk where both salespeople start out offering three pieces of fruit.

The first appears to offer three pieces but each time ultimately gives the monkey two, so the monkey sees a loss – but it is a safe, consistent loss.

The second salesperson meanwhile starts out offering three pieces but introduces more risk – sometimes the monkey receives all three, but sometimes only one.

Santos found the monkeys preferred to go with the second salesperson, adding: “They prefer to risk losing more because there is also a chance they will have no loss at all. That is just what humans do.”

A humbling thought – and further support to our contention, here on The Value Perspective, that investors should look to adopt an approach, such as value, that strives as far as possible to remove emotional and instinctive biases from the investment equation.


Andrew Evans

Andrew Evans

Fund Manager, Equity Value

I joined Schroders in 2015 as a member of the Value Investment team. Prior to joining Schroders I was responsible for the UK research process at Threadneedle. I began my investment career in 2001 at Dresdner Kleinwort as a Pan-European transport analyst. 

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