Trading basics – how monkeys understand Expected Value and scientists don't

<p>A team of scientists in Japan have developed technology to turn monkeys into scalpers. </p><p>OK, not really, the technology turns the monkeys from high risk takers to low risk takers. </p><ul><li>scientists implanted chips into their brains</li><li>used flashes of light from implanted chips to activate two different sections of the macaque monkeys' brains</li><li>

Switching one on encouraged them to take bigger risks with the hope of a bigger payoff, while switching the other section on led the animals to settle for a smaller but more certain reward</li></ul><p>However, there's a huge problem here. The scientists don't understand Expected Value. The monkeys do. This is basic trading.</p><p>Check this out:</p><ul><li>the macaques were trained to look at different colored spots on a screen to receive a water reward</li><li>some spots would give the monkey a small reward 90 percent of the time</li><li>others gave a reward that was 10 times larger, but it only paid out 10 percent of the time</li><li>Overwhelmingly, the monkeys went for the high-risk, high-reward spots.</li></ul><p>Well, yeah. Do the maths.</p><p>Let's call the reward "R":</p><ul><li>getting 1R 90% of the time is R*0.9 = 0.9R</li><li>getting 10R 10% of the time is 10R*0.1 = 1R</li></ul><p>You with me? </p><p>(R*0.9) is less than (10R*0.1). </p><p>The monkeys were right all along. </p><p><a href="https://www.dailymail.co.uk/sciencetech/article-12926519/gambling-addiction-brain-chip-risk-taking.html" target="_blank" rel="nofollow">Link here for more. </a></p><p>No wonder they get all the $ and all the chicks.</p>

This article was written by Eamonn Sheridan at www.forexlive.com.