Today I bring to you a video from the TEDGlobal 2010 (TED, standing for, Technology, Entertainment and Design, is a small nonprofit devoted to “Ideas Worth Spreading”) in Oxford, England entitled “A monkey economy as irrational as ours”.

I will be the first to admit, when I see a video that is just shy of 20 minutes in length, I get a bit wary. I will also be the first to tell you that I felt like this little mini-economic observational study was to the likes of the first “Back to the Future” film; in that I wanted it to keep going!

Well fire up that DeLorean Doc and get ready for a real treat of an economic study. Bail outs? Where we’re going we don’t need bail outs! …well, maybe.

This video features Laurie Santos, leader of the Comparative Cognition Laboratory (CapLab) at Yale University, exploring the ideas and reasons behind her latest study, “Monkeynomics” and the similarities of how monkeys use money in comparison with humans. While both species are incredibly smart we share one other intelligence quality with our primate ancestors, sometimes being incredibly dumb in decision making, especially with finances.

Recently, Santos and her team of students put together a study where they taught monkeys to use a form of currency that could be traded for food. Their hopes for the study were to show similarities in the decisions we humans make with financial risks and the risks monkeys would take.

Their initial interest in this study derived from the simple question in regards to the human race, “how is a species that’s as smart as we are capable of such bad and such consistent errors all the time?” and “where do our mistakes really come from?”

They decided they needed “a population that’s basically smart, can make lots of decisions, but doesn’t have access to any of the systems we have, any of the things that might mess us up — no human technology, human culture, maybe even not human language”. That’s where capuchin monkeys came in handy! Capuchin monkeys are seen as the most intelligent of New World monkeys (New World meaning that they broke off from the human branch about 35 million years ago).

First they had to teach the monkeys to use their new form of currency, “tokens”, to purchase food from handlers, a task the primates picked up quite quickly. It was simple, one token could be traded by a monkey for food, in this case, grapes.

It was interesting to see that when food cost less, like humans, monkeys would overbuy. Also, monkeys would take the same risks that humans would in terms of loosing money. In the situation to make more money they would play it safe and take less risks for a guaranteed pay out but given the chance to lose money they would take more risks for the chance to earn more.

One of the most interesting aspects of this video was when Santos gave an example of how we, as humans, view risk taking when it comes to money in the sense of gaining and loosing money. She gives the scenario if you were to receive $1,000 and given the risky option to flip a coin, heads being you receive $1,000 more and tails you get nothing or the safe option of receiving an extra guaranteed $500 most people would play it safe and walk away with the guaranteed $1,500. However, when faced with the situation of loosing money most people chose to take a risk; when given the option of receiving $2,000, flipping a coin and having $1,000 removed from your pocket or tails nothing removed versus just handing back $500.

Both scenarios gave a guaranteed $1,500 but only when loosing money did people decide to take the riskier route in hopes of keeping more regardless of the same 50/50 shot of $1,000 or $2,000. Santos comments that, “people’s intuitions about how much risk to take varies depending on where they started with”. You can usually view this behavior in your average episode of “Deal or No Deal”.

“The idea is that we really hate it when things go into the red. We really hate it when we have to lose out on some money. And this means that sometimes we’ll actually switch our preferences to avoid this. What you saw in that last scenario is that subjects get risky because they want the small shot that there won’t be any loss. That means when we’re in a loss mindset, we actually become more risky, which can actually be really worrying. These kinds of things play out in lots of bad ways in humans. They’re why stock investors hold onto losing stocks longer — because they’re evaluating them in relative terms. They’re why people in the housing market refused to sell their house — because they don’t want to sell at a loss.”

After reviewing the results and collaborating with economists it was surprising to see that the monkeys economic data mirrored that of humans, so much so that you wouldn’t be able to tell if the data came from a monkey or human market without properly distinguishing between the two. Personally, if you had to label the two I’d like to see them lined up as so: Men with Yellow Hats and Inexplicably Curious Primates, but that’s just me.

In regards to the original question of “where do our mistakes really come from?” Santos explains, “we started with the hope that maybe we can sort of tweak our financial institutions, tweak our technologies to make ourselves better. But what we’ve learned is that these biases might be a deeper part of us than that. In fact, they might be due to the very nature of our evolutionary history”. This may just be an innate trait we’ve carried over the past 35 million years.

Santos deducts that it may not be our environments that are messed up but maybe our own design that makes us make poor choices. “This is a hint that I’ve gotten from watching the ways that social scientists have learned about human errors. And what we see is that people tend to keep making errors exactly the same way, over and over again. It feels like we might almost just be built to make errors in certain ways. This is a possibility that I worry a little bit more about, because, if it’s us that’s messed up, it’s not actually clear how we go about dealing with it. We might just have to accept the fact that we’re error prone and try to design things around it.”

This brings to my mind something Albert Einstein once said which is that, “insanity is doing the same thing over and over again and expecting different results.” Perhaps by scientific observation we are innately financially insane? Try explaining that one to your creditors if you miss a payment!

Santos concludes, “It was Camus who once said that, ‘Man is the only species who refuses to be what he really is.’ But the irony is that it might only be in recognizing our limitations that we can really actually overcome them. The hope is that you all will think about your limitations, not necessarily as un-overcomable, but to recognize them, accept them and then use the world of design to actually figure them out. That might be the only way that we will really be able to achieve our own human potential and really be the noble species we hope to all be.”

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• Daniel Writes In – “How Can I Get Out of Credit Card Debt?”

Read the full article at GetOutOfDebt.org, click here: Are Humans Innately Risky With Money? Or Is It All Just Monkey Business?

Daniel says, “I’ve been buried in credit card debt and it feels like I make payments each month and instead of things going down, things go up. My interest rates recently went up even though I have not missed a payment or paid late. Another one of my MasterCard’s just lowered my limit a lot. Is there any hope. Thanks”

Daniel,

Thank you for contacting me. I’ll do my best to answer your question honestly and openly.

There is nothing about credit cards that operates for your benefit or that you have control over. The banks issue the cards, raise and lower the limits and play with the interest rates as they want.

Banks are self-centered and only care about their risk and reducing their liabilities and so when they shrink credit limits and that leaves you more maxed out on the remaining credit and that hurts your credit report and credit score, quite honestly, they don’t give a shit.

The credit card company is concerned about only one thing, profit. I’m not being cynical here, just dead honest. Profit is what it is all about. Profit is what fuels the bank and the little guy, like you, we’ll you’re just a number on a screen. You are a cog in the wheel to help them generate profit.

The banks know that they can increase profit by increasing interest rates. The balance becomes how much to increase interest rates without chasing customers, profit machines, away. If you’ve got shitty credit, they’ve really got you by the short hairs. You are probably not going to find a better deal elsewhere.

When the economy looks great, banks will pass water out like ecstasy at a rave. When the economy looks bad and losses are creeping up then banks start cutting and pruning to minimize their financial risks, which may hurt their profit.

Past due credit card accounts are rising. They are up 22% since this time last year because people are just getting so close to the financial edge that they are having a tough time paying the bills. And as wages contract people often turn to the credit card as a way to make ends meet. Balances go up and repayment becomes less affordable.

It is reported that consumer credit card debt has doubled since 1996 and is now cruising at around $1 trillion and while even though that number sounds really big, it’s not when compared to what it will be by 2018. The amount of consumer debt hasn’t leveled off, it is still on the climb.

Credit card companies don’t make a profit unless they poor more debt into the economy and more people use it. Banks can’t stop lending. Banks need you to go into debt.

The only real protection that consumers have is the law and right now the law lets banks do pretty much what they want to. Banks are able to change how payments are applied to your account, change the interest rates, fees and grace period, eliminate your rights for an impartial arbitration, and more.

Until the federal government gets the balls to pass laws that actually protect consumers, like through Obama’s Credit Card Bill of Rights, you don’t have much power to change what they are doing unless you pay your balance off in full and no longer carry a debt owed to any credit card company.

When you carry a balance on a credit card you are truly nothing more than a modern day slave, working hard to obey your master, the bank.

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Read the full article at GetOutOfDebt.org, click here: Daniel Writes In – “How Can I Get Out of Credit Card Debt?”