Venkat Lakshminarayanan

How Basic Are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior

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 money and trade, these results suggest that loss aversion extends beyond humans and may be innate rather than learned.

Evolved Irrationality? Equity and the Origins of Human Economic Behavior

While the economic approach to human decision-making characterizes our choices in terms of how we maximize utility, in many cases, such an approach fails to predict the decisions we actually make. Specifically, preference-biases such as loss-aversion and reference-dependence demonstrate that decision-makers make relative (rather than absolute) comparisons in judging the quality of their rewards. In the case of inequity aversion, decision-makers take into account not just their own earnings, but also the quality of another individual’s reward. In this chapter, we discuss an evolutionary approach to uncovering the origins of these irrational economic strategies. To do this, we review recent experiments showing that nonhuman primates possess a variety of economic tendencies previously thought to be unique to humans. The existence of economic decision-making biases outside of our species implies that ancestral organisms may have possessed these same tendencies – suggesting that humans’ biased economic decisions may actually have been adaptive in evolutionarily ancient environments, even though they might be characterized as irrational in contemporary economic settings.

The Evolution of Our Preferences: Insights from Non-human Primates

Publisher Summary This chapter discusses how choice changes preferences in adult humans and the origins of choice-based preference reversals. If decision-making researchers knew that some experiences were likely to promote choice biases, they could intervene in ways that might promote better decision-making. A second domain where researchers have examined the origins of choice biases involves framing effects. Although classical economists may want to believe otherwise, real human decision-makers often make different choices depending on how a problem is described or framed. Specifically, they appear to work harder to avoid losses than they do to seek out correspondingly sized gains, a bias known as loss aversion. Loss aversion is evident in the above scenario insofar as people tend to take on more risk in an attempt to avoid experiencing any loss relative to their reference point. The early emergence of choice biases hints that such biases might persist in the face of extensive economic exposure or market disciplining.

The Evolution of Our Preferences

Publisher Summary This chapter discusses how choice changes preferences in adult humans and the origins of choice-based preference reversals. If decision-making researchers knew that some experiences were likely to promote choice biases, they could intervene in ways that might promote better decision-making. A second domain where researchers have examined the origins of choice biases involves framing effects. Although classical economists may want to believe otherwise, real human decision-makers often make different choices depending on how a problem is described or framed. Specifically, they appear to work harder to avoid losses than they do to seek out correspondingly sized gains, a bias known as loss aversion. Loss aversion is evident in the above scenario insofar as people tend to take on more risk in an attempt to avoid experiencing any loss relative to their reference point. The early emergence of choice biases hints that such biases might persist in the face of extensive economic exposure or market disciplining.

Chapter 4 – The Evolution of Our Preferences: Insights from Non-human Primates

Publisher Summary This chapter discusses how choice changes preferences in adult humans and the origins of choice-based preference reversals. If decision-making researchers knew that some experiences were likely to promote choice biases, they could intervene in ways that might promote better decision-making. A second domain where researchers have examined the origins of choice biases involves framing effects. Although classical economists may want to believe otherwise, real human decision-makers often make different choices depending on how a problem is described or framed. Specifically, they appear to work harder to avoid losses than they do to seek out correspondingly sized gains, a bias known as loss aversion. Loss aversion is evident in the above scenario insofar as people tend to take on more risk in an attempt to avoid experiencing any loss relative to their reference point. The early emergence of choice biases hints that such biases might persist in the face of extensive economic exposure or market disciplining.