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Animal Spirits

The term “Animal Spirits” was popularized by Keynes in his 1936 book “The General Theory of Employment, Interest and Money” and was an attempt to put in perspective the market rationality assumption. But, taking it literally and the other way around, is there really something that animals can teach us about economic behaviour? Surprisingly enough, it is possible to observe economic reasoning in non-human animals. This may seem to have some ridiculousness in it, but in fact it has been the object of study of several comparative psychologists in the last decades. Studies conducted in an operant conditioning chamber using food rewards aimed to establish a connection between stimulus-response relationships and such economic concepts as demand, labour supply or budget. I will present two examples of this kind of experiments, both very simple and intuitive.

Pigeons, for instance, seem to have grasped the essential response to a decrease in wage in terms of labour supply. When deprived of food, pigeons in an operant conditioning chamber discover that they are provided with food by pecking a small disk, placed in one side of the chamber. Then, pecking behaviour is reinforced, since it is associated with a reward (food). Food is here thought as the currency and pecking the work a pigeon has to carry out in order to get the corresponded reward. By pecking the disk regularly, the pigeon earns its wage, which might be adjusted by changing the amount of food supplied, the rate at which food is supplied or the food itself (according to its desirability). It has been observed that pigeons work (pecking) less when the reward is reduced. This is described as a similar behaviour to the effect in (human) labour supply of a decrease in wage.

Studies on demand in rats have showed that the negative slope of the typical demand curve stands when it comes to the animal kingdom. This time, the monetary analogue is bar pressing. Rats placed in a conditioning chamber are awarded with a certain commodity (usually different types of food) by pressing the bar. The number of bar presses required to obtain a certain commodity is treated as the price of that commodity. By changing the number of bar presses required to a certain commodity, we can, therefore, change its price. The results point out that there is a contraction of demand to a certain commodity when rats have to press the bar more times.

These are truly simple economic principles, which are confirmed by rudimentary, but significant empirical evidence. The goal of this type of experiments is to detect economic reasoning in experimentally-tractable non-human animals. Behavioural economics has gained preponderance in the last decades of the twentieth century and research of this type (which is a branch of behavioural economics, with a strong relationship to psychology) is argued to have its role in explaining microeconomic decisions. We may like it or not (have to admit that this is not orthodox economics), but this heuristic approach seems to be an interesting trend in economic theory. It certainly helps to demonstrate or even explain what is behind some basic economic concepts. Rationality assumptions are confirmed in this examples but a more important role (and a more challenging one) is played by behavioural economics when it comes to explain why market participants makes systematic errors at the light of rationality principles. Over-reactions to market information in financials markets, which can lead to the creation of bubbles and crashes in extreme situations, are a well-known example of such a situation.

The idea that human behaviour can, after all, be compared to animal behaviour is difficult to accept. But, as far as this kind of experiments is concerned, it is a fact. It seems Keynes was literally right.

Bernardo Branco Gonçalves

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Sources:

Battalio, R. C.; et al. (1981). “Income-Leisure Tradeoffs of Animal Workers”. American Economic Review 71

Kagel, J. H.; et al. (1981). “Demand Curves for Animal Consumers”. Quarterly Journal of Economics 96

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Author: studentnovasbe

Master student in Nova Sbe

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