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Stock Market

Are you a monkey with your money?

September 19th, 2013 by

It turns out we're all buffoons in the market


We may all be monkeys flinging stocks at each other in the hopes of catching the big banana.  According to Phys.org, new research published in the Proceedings of the National Academy of Sciences journal suggests monkeys have the same way of determining risk preferences as we do.

Researchers spent 20 days teaching rhesus macaques how to gamble in order to conduct the study. The currency: water. The monkeys’ hydration levels were measured before every wager to determine how “rich” or “poor” each monkey was.

The more hydrated monkeys were said to be the wealthier ones. The monkeys were given two options. One would yield them a little water, but be a sure bet every time. The other option had a split chance of yielding any water at all, but if it did, it would grant a greater return.

The scientists found interesting similarities between the way monkeys and humans make decisions in situations where risk is involved. It turns out we’re not so different from our primate cousins.

Monkey see, monkey do

  • Scientists found that wealthier monkeys were more willing to wager on a risk than poorer monkeys.

Do your research and calculate your choices accordingly. People with a bigger pot are less afraid of some loss if the return is great enough. Don’t take an unprecedented risk just because you can - do it because it looks and feels promising.

  • The poorer monkeys always bet on the safe choice. As a result, they always got just enough to get by.

Know what you’re buying into and don’t let fear or greed dictate your actions. You might hit it big with a riskier investment, but be aware when and if the odds are against you. Remember the difference between being an emotional investor and a logical investor.

  • When a wealthy monkey started to plummet into poverty (dehydration) they started betting on the sure choice.

When people start to see their money drowning in a stock, they usually pull out and find a safer place to put it. Some of the biggest bears on Wall Street make their mark by taking advantage of these situations. Charles Munger, for example, is notorious for investing in plummeting stocks and bagging a big ROI as a result. But then again, he’s someone we would consider rather “well-hydrated”.

  • Overall, the monkeys generally took the less risky route.

At the end of the day, you can’t gamble away your bread and water (or in this case, just your water) in the hopes of winning the jackpot. As Warren Buffett once said: “Risk comes from not knowing what you’re doing.” If you don’t know what you’re doing, don’t be afraid to ask your broker for advice.

How not to invest like a monkey

With just 20 days of training, it’s unlikely these monkeys have quite mastered the stock market game just yet. Evidently, we share biological mechanisms with primates that affect our reasoning in situations with risk.

A similar study with birds showed inconclusive and contradictory results, suggesting these biological mechanisms are implanted into our genetic makeup.

Luckily, we've evolved to using more than just sense to make our dollars and cents. We now have research, resources and reason to back our claims up on paper - and make us a little less of a buffoon (we hope).

Jun 26 2017 12:16am

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