Endowment Effect in Monkeys?

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Endowment Effect in Monkeys?
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Adam Smith, Wealth of Nations

• Nobody ever saw a dog make a fair and deliberate
  exchange of one bone for another with another
  dog. Nobody ever saw one animal by its gestures
  and natural cries signify to another, this is
  mine, that yours I am willing to give this for
  that.

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Notes from Chens Research

1. Chen, Lakshminarayanan and Santos How Basic are
   Behavioral Biases?
2. Lakshmiraryanan, chen and Santos Endowment
   Effect in capuchin monkeys

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How Basic Are Behavioral Biases?

• 1. Reference dependence
• 2. Loss aversion
• Evidence that agents treat losses differently
  than comparable gains has been found in
  experimental markets as the endowment effect
  (Kahneman, Knetsch, and Thaler 1990),
• in the trades of individual investors who are
  reluctant to realize losses (Odean 1998),
• and in the behavior of house sellers who are
  unwilling to sell below buying price (Genesove
  and Mayer 2001).

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Questions

• Are biases such as loss aversion the result of
  social or cultural learning and specific
  environmental experiences?
• Could they be more universal, perhaps resulting
  from mechanisms that arise regardless of context
  or experience?

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Background Neuroeconomics

• Several recent papers have shed light on the
  foundations of behavioral biases.
• Growing literature in neuroeconomics use imaging
  technology to map brain activity as subjects make
  economic decisions and correlates these measures
  of brain activity to subjects decisions.
• McClure et al. (2004) spacial distribution of
  brain activity is correlated with decisions
  involving intertemporal choice

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Background Evolutionary Forces

• What types of evolutionary forces might have
  selected for organisms that display behavioral
  biases?
• Rayo and Becker (2005) explore what types of
  evolutionary pressures would have produced both
  past payoff and social reference piotn effects
• Samuelson and Swinkels (2006) explore under what
  conditions choice set effects might be
  evolutionarily optimal

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More

• Henrich et al (2001) perform behavioral
  experiments in 15 small-scale societies, all of
  which are relatively isolated and have had
  relatively limited market contact.
• Finds large differences in how they play the
  ultimatum game.

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Economic Experiments with Children

• Harbaugh, Krause, Berry (2001) conduct
  experiments exploiting age instead of cultural or
  species variation. They conduct numerous simple
  budgeting experiments on children between the
  ages of 7 and 11 and find that violations of GARP
  are relatively rare.
• Harbaugh, Krause, and Vesterlund (2001)
  find evidence of the endowment effect in children
  as young as 5 and find no evidence that the
  effect diminishes with age up through college
• This suggests that the endowment effect is not
  reduced by market exposure, though it leaves open
  the possibility that children learn this behavior
  through experience they receive before age 5

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Economic Experiments with Animals

• Kagel, Battalio, Green, and their colleagues
  (1975 etc.) taught rats and pigeons to use levers
  that each deliver a unique reward .
• They find that subjects choices during such a
  shift largely respected GARP in fact, utility
  maximization does a much better job of explaining
  their data than any other available choice theory
  (including the canonical nonhuman psychological
  choice model, the
• later experiments involving gambles, Kagel and
  his colleagues observed that, on balance, rats
  and pigeons obeyed expected utility theory but do
  display some systematic biases.
• However, in contrast to results on human (and
  our capuchin) subjects, Kagel and his colleagues
  find that prospect theory does not explain the
  deviations from expected utility theory that are
  present in rats and pigeons matching law

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Why the Capuchin?

• They are relatively quick and adept problem
  solvers, skilled tool users
• Close evolutionary neighbor to humans.
• A con? Cant get a good sample size.
• Six adult capuchins, three male and three female
  ranging from 7 to 8 years old participated in the
  experiment.

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The Experiments

• Monkeys were endowed with a budget of tokens
  (identical inch-wide aluminium discs) and
  participated in trading discs for food rewards.
  
• First experiments established a trading scheme
  and taught the monkeys what kind and amount of
  food they were offering for a single token
• The monkey could then choose to trade with
  whomever it chose.

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Can the Capuchins behave broadly rationally in an
economic market?

• Presented monkeys with a choice between traders
  who offered two different kinds of food that the
  monkeys liked equally apple slices and grapes.
• The monkeys split their budget on the two fruits.
• Now, introduce a compensated price shift put one
  of the goods (apples) on sale by providing double
  the quantity for a single token.
• The monkeys bought more apples!

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Now introduce a risky choice...

• One experimenter always offered (and gave) one
  piece of apple
• A second experimenter always offered two pieces
  of apple, but half the time gave one piece and
  half the time gave two. (expected value 1.5)
• Here the monkeys chose the risky bet.

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What these results told Chen

• 1. Capuchins understand the market
• 2. Capuchins used information about traders past
  behavior to make informed choices
• 3. Monkeys appear to behave rationally in the
  market trying to get a better deal.
• Question will they use heuristics like humans
  do?

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Test

• 1. one experimenter gave food by way of a
  perceived gain he started out by showing the
  monkey only one piece of the apple but when paid
  gave an additional second piece of apple half the
  time.
• 2. the other experimenter started out by
  displaying two pieces of apple but when paid took
  one of the pieces of apple away half the time
• Expected value of the two traders is the same

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Result?

• Monkeys significantly preferred to trade with the
  experimenter who gave a perceived gain over the
  one who gave a perceived loss
• Monkeys seem to evaluate their choices in terms
  of an arbitrary reference point, namely the
  initial amount of food that they were shown.
• In a similar experiment one experimenter showed
  one and gave one, another showed two and gave
  one... The monkeys preferred the first.
• They are averse to losses!

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The Endowment Effect

• It may be unique to humans... The concept of
  ownership is a sophisticated notion that one
  can or should hold exclusive control over an
  object or good.
• But maybe the source of the EE is just loss
  aversion.
• Brosnan et al (2007) finds evidence of the EE in
  chimpanzees.

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Chens EE test

• Baseline session subjects given 12 tokens and
  allowed to use the tokens to purchase rewards by
  placing a token into the hand of one of two
  experimenters. Could get fruit or cereal.
  Adjusted rewards to get it so the goods were
  equally liked (indifferent).
• Experimental sessions
• 1. replaced subjects tokens with food
• 2. presented only one experimenter as a trading
  option to the subject
• Session 1 fruit for cereal
• Session 2 cereal for fruit
• Subjects could either eat the endowed food
  objects or trade them for the offered equivalent

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Variations Experiments 2, 3 4

• 2. Subjects were endowed with either cereal or
  fruit and could then trade it for a highly valued
  treat Marshmallow fruit roll up.
• 3. Tested to see if the EE existed even after
  subjects were compensated for the cost of
  transacting the trade subjects could eat their
  endowed food objects or trade them for the
  equivalent food plus a small compensation (oats
  that were tested for how much a transaction
  costs) for the transaction cost of the trade.
• 4. Temporal effect can the subjects put off the
  pleasure of immediate eating? Tested between a
  slow-to-eat food like an almond in its shell or a
  quick food an almond without a shell.

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Results Experiment 1

• If ownership of foods does not impact the value
  the capuchins place on them, then monkeys should
  consume the same ratio of fruit discs to cereal
  as they did in the baseline.
• In contrast, subjects consumed far more of the
  fruit discs when they were endowed with fruit
  discs and far more cereal when endowed with
  cereal.

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Results Experiment 2, 3 4

• The draw of the excellent treat overcame the
  endowment effect.
• Compensating for transactions costs did not
  overcome the EE
• Immediacy of ingestion did not overcome the EE

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Discussion

• These results fit with a growing body of work
  suggesting that many of our own species
  behavioral biases appear to be shared with other
  primate species... Even those that are distantly
  related in evolutionary time.
• Implication is that our human systematic biases
  might be the result of evolved cognitive
  strategies
• Question do the biases serve some evolutionary
  purpose?