Wednesday, October 21, 2009

Simian Stock Traders

Abstract from Chen, Lakshminarayanan and Santos, "How Basic are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior" Journal of Political Economy, June 2006
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 trade and gambles, these results suggest that loss-aversion extends beyond humans, and may be innate rather than learned.
A handy paper to send to your favorite derivatives trader.
h/t to Brad DeLong.

No comments: