From the Undercover Economist:

FT.com / Weekend columnists / Tim Harford – Dear Economist

Is there a relationship between a student’s decision of whether to have sex and his/her performance in school? Tim Harford finds there just might be.

There is little doubt that virgins achieve better grades. Yet is this because sex kills brain cells, or because kids who are already bored at school look harder for ways to amuse themselves?

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To eat . . . . or to drive? – Times Online

The whole debate over global warming has just as many economic as environmental implications. A recent article in The Times illustrated how the growing investment in renewable biofuels impacts on global food markets.

Apparently as a result, Japanese snack packets now contain 10% less chips than they did a month ago, while the price of beer at the Munich Oktoberfest will be at record levels.

These, say industry insiders, are the first skirmishes of a conflict that could soon dominate geopolitics: the war for resources between the world’s 800 million cars and its six billion stomachs. In the developed world, the war will come down to price and choice; in the developing world it could come down to survival. The war centres largely on global demand for biofuels — “green” replacements for petrol, such as ethanol, that can be produced from sugar, corn and other agricultural products rather than fossil fuels.

Wheat and barley fields are being replaced by ethanol sources, such as sugar and corn, in the USA and Brazil. Reduced food supplies are leading to higher prices for snacks and beer. The article states starkly that the “war for resources” will be between cars and stomachs. Economists would not envisage such an apocalypse, because they believe that the price system will efficiently allocate resources even on such a wide scale over the globe and between such apparently disparate goods. But the intermediate scenarios should be interesting.

Freakonomics: Monkey Business: Keith Chen’s Monkey Research

No I’m not talking about the latest freshman class at an Ivy League school… rather a group of monkeys at Yale that have been taught how to use money:

The essential idea was to give a monkey a dollar and see what it did with it. The currency Chen settled on was a silver disc, one inch in diameter, with a hole in the middle — ”kind of like Chinese money,” he says. It took several months of rudimentary repetition to teach the monkeys that these tokens were valuable as a means of exchange for a treat and would be similarly valuable the next day. Having gained that understanding, a capuchin would then be presented with 12 tokens on a tray and have to decide how many to surrender for, say, Jell-O cubes versus grapes. This first step allowed each capuchin to reveal its preferences and to grasp the concept of budgeting.

Turns out the law of Demand is not only true for humans but for monkeys too. When Chen “lowered the price of grapes”, monkeys would buy more grapes and less Jell-O, following the basic rule of utility maximization. Interestingly, the introduction of money led to more than just the simple exchanges of currency for candy and cucumber; the monkeys were also taught to gamble. Through their observations of several gambling scenarios, the researchers found monkeys tended to display “loss averse” behavior in games of chance, leading to an amusing conclusion:

The data generated by the capuchin monkeys, Chen says, ”make them statistically indistinguishable from most stock-market investors.”

Sadly, gambling was not the only vice that accompanied the introduction of money in to monkey society:

Then there is the stealing. Santos has observed that the monkeys never deliberately save any money, but they do sometimes purloin a token or two during an experiment.

But the debauchery does not stop with gambling and theft:

Perhaps the most distinguishing characteristic of money, after all, is its fungibility, the fact that it can be used to buy not just food but anything. During the chaos in the monkey cage, Chen saw something out of the corner of his eye that he would later try to play down but in his heart of hearts he knew to be true. What he witnessed was probably the first observed exchange of money for sex in the history of monkeykind. (Further proof that the monkeys truly understood money: the monkey who was paid for sex immediately traded the token in for a grape.)

As if we needed any proof beyond the widespread immorality and loss of values that distinguish many rich human societies, the steep decline of monkey morality observed at Yale can only be attributed to the introduction of currency! The implications of the Yale study on economics are clear: humans are not necessarily unique in our understanding of currency as a means of exchange. As long as money has imbued human societies, the wont to enrich ourselves through immoral means such as gambling, theft and prostitution has stained civilizations from ancient Mesopotamia to modern America.

When taught to use money, a group of capuchin monkeys responded quite rationally to simple incentives; responded irrationally to risky gambles; failed to save; stole when they could; used money for food and, on occasion, sex. In other words, they behaved a good bit like the creature that most of Chen’s more traditional colleagues study: Homo sapiens.

To make a more poignant observation, one thing is clear and disturbing, among the human societies today, Americans are most like monkeys when it comes to saving.

Discussion Questions:

1. Of the various functions of money, which role does money play for monkeys?
2. What gives the money used by the monkeys its value?
3. Discuss the evidence from this article suggesting that monkeys follow the law of demand.
4. What is the utility maximization rule and what evidence from this article supports the suggestion that monkeys follow this rule?
5. How are monkeys more similar to American consumers than to, say, Japanese or Chinese consumers?

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