The answer may be found in the charming Capuchin monkey.
A study last year at Yale University taught Capuchin monkeys (Organ grinder monkeys) to use small disks to trade for rewards such as apples, grapes or gelatin.
The goal of the study was to determine whether some of our consumer behavior was unique or whether other primates also shared it.
The study chose Capuchin monkeys because they have large brains, are skilled problem solvers and are a close evolutionary relative to humans.
In the study, the Capuchins used their disks to buy food: half the time their one token would yield one piece of food, half the time their token would yield two pieces of food. Apparently, this yield was determined at random by the study.
In this scenario, the food would be guaranteed, but the Capuchins might be given a bonus, as well. They were guaranteed a win.
In the next part of the study, the Capuchins used two tokens to buy food. With the two tokens, half the time the token would yield two pieces of food and half of the time their tokens would yield only one piece of food, at random.
In this case, the following scenario could happen: the Capuchin could use both tokens and be given food both times; the Capuchin could use the first token and be given food in return, or the Capuchin could use the second token and be given no food.
With this scenario, the risk of loss was associated with buying. The Capuchin would not know whether or not their two tokens would yield food both times, or only one time. They could lose.
The Capuchins strongly preferred the first scenario. The Capuchins had a strong aversion to 'loss' and avoided it.
People do the same thing: we will opt for the bonus rather than go for the risk. People will work harder to avoid losing money than they do to make money; people prefer to avoid losing money.
Apparently, this is a long-held view in Economics known as 'loss aversion.' According to the study, loss aversion is more than twice as powerful, psychologically, as gains.
The stock market, associated with a high risk of loss, tends to scare people away from investing, due to people's loss aversion, a tendency that economists and psychologists are discovering may be hard-wired in primates.
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Comments: 31
To do with all your heart knowing the possible result could be entirely negative....
I'm definitely not in the stock market.
How about Three Card Monte? ;-)
In the second part, the Capuchins were given two tokens. One of three things would happen with the two tokens. Food both times, food one time, food no times. Risk of loss with this one. The Capuchins did not choose this method, like people don't, either.
Your point is very good.