Mathias Brandewinder on .NET, F#, VSTO and Excel development, and quantitative analysis / machine learning.
by Mathias 2. April 2008 11:35

Discovery.com has an interesting piece on a recent study of the risk attitude of chimpanzees and bonobos. The experiment was conducted the following way:

The apes had to choose between two upside-down bowls. One was the "safe" bowl, which always covered four grape halves.The other was the "risky" bowl, which covered anything between one and seven grape halves. Interestingly, the result of the experiment showed that the two species have very different attitudes towards risk: Chimpanzees turned out to be big risk-takers, invariably tempted to go for the grand prize even if this also meant frequent disappointment. Bonobos, like humans, were strongly risk-adverse, and preferred to go for the fixed, dependable reward.

The two species are apparently very closely related, which makes this difference in attitude especially intriguing. The study postulates that its origin is an evolutionary adaptation to environmental pressure: bonobos have the same base diet as chimps, but also eat herbs, which are more reliably available. Chimps, having a less predictable source of food, would have developed a “big or bust” attitude, a mechanism better suited for the conditions they have to face.

This last point I found very interesting. In microeconomic and decision theory, there is no value judgment attached to risk attitude; it is taken as a description of individual agent’s behavior, a matter of taste, so to speak. However, risk-taking behavior is usually eliminated from financial literature, on the grounds that no sane investor should gamble - in the long run, if you go for broke often enough, you will get broke. Therefore, only risk-adverse behaviors are considered reasonable.

So if the chimp’s “big or bust” strategy is the best way evolution found to cope with an uncertain, unpredictable environment, it makes you wonder. I would still prefer my banker to be bonobo rather than chimp when playing with my money, but it would make sense that the stock market, with its volatility (and rewards system) would attract risk-taking, Chimp-like personalities, more suited to survive its pressure. Maybe keeping the savings under the mattress was not such a bad idea after all?

Comments

8/26/2008 1:24:27 PM #

options trading

thanks for this tips.. Laughing

options trading United States | Reply

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