People Care More About Status Than Money

The LATimes has an interesting article about the strange things people think about money. Chief among the odd behavior was the average person’s answer to the following question:
Would you rather be A or B?

A is waiting in line at a movie theater. When he gets to the ticket window, he is told that as he is the 100,000th customer of the theater, he has just won $100.

B is waiting in line at a different theater. The man in front of him wins $1,000 for being the 1-millionth customer of the theater. Mr. B wins $150.

According to the Times, the average person choses “A”:

Amazingly, most people said that they would prefer to be A. In other words, they would rather forgo $50 in order to alleviate the feeling of regret that comes with not winning the thousand bucks. Essentially, they were willing to pay $50 for regret therapy.

Regret falls under a psychological effect known as loss aversion. Research shows that before we risk an investment, we need to feel assured that the potential gain is twice what the possible loss might be because a loss feels twice as bad as a gain feels good. That’s weird and irrational, but it’s the way it is.

We can’t imagine a world where people would come to the conclusion that it was a good idea to pay $50 to avoid knowing that they didn’t win $1,000. Does not compute.

The article goes on to explain the possible evolutionary causes for such behavior. Evolution’s effect on people’s perception of money is such that the vast majority of people care more about “making more money than other people” than they do about how much money they’re actually making:

Would you rather earn $50,000 a year while other people make $25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same.

Surprisingly — stunningly, in fact — research shows that the majority of people select the first option; they would rather make twice as much as others even if that meant earning half as much as they could otherwise have. How irrational is that?

Obviously the scenario can never happen, but do you feel this way? We suppose it can explain why some people bankrupt themselves just so they can have a better car than their neighbor.
Why people believe weird things about money [LATimes]
(Photo:Joy of the Mundane)

Comments

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  1. Rando says:

    I seemed to picked the things the average person didn’t pick.

    I am the winner.

  2. cobaltthorium says:

    that’s the society we live in – Hummers, Houses we can’t afford, Credit cards we don’t need, it’s not about money – it’s about what people (and apparently, ourselves) think of ourselves.

    A phycologist could probably relate this back to attracting a mate. Personally, I think everything comes back to trying to get laid.

  3. mantari says:

    I think it all centers around who these “other people” are. If “other people” = “everyone else”, then I’d take the $50k, because I’d make 2x more than all other people in the world. (Certainly a peer group that has some value.)

    If “other people” means “people in your city”, and you like your city, then you might want to accept $50k as well.

    If “other people” means people in your industry, well, I suppose it would also depend on your industry. If it was prone to layoffs, making far less than everyone else would be a benefit. Otherwise, it would depend on the amount of important you place on that peer group.

    If “other people” means some random individuals you don’t need to interact with, then $100k seems to make the most sense.

    Peer groups are important. But I like how this asks how important they are.

  4. snoop-blog says:

    i call the people who chose to make 50,000 while everyone else made 25,000 ‘haters’.

  5. barfoo says:

    It’s not “irrational” to base one’s choice on status rather than material benefit: both are “goods” (in the social science sense), and it’s just a matter of the relative value one gives each good.

    What is the comparison were: Would you rather have an income of $50,000 a year while others made $25,000, or an income of $50,001 while others made $100,000? I think most of us would sacrifice that one dollar for the greater sense of status/equality with others. The only question is how much we’d sacrifice for that end. After all, status is something money can’t always buy.

  6. johnperkins21 says:

    I imagine the responses would have been different in another city. LA isn’t really a place where you can find the “average” person. Status is a huge thing there, and these results don’t really surprise me based on the location.

    What would the results be if they were to conduct the experiment in say Wisconsin, or Bangor, Maine? I’m certain the results would be more akin to what we would consider rational thinking.

  7. Tracy Ham and Eggs says:

    We got into this a few weeks back when discussing retail management. These positions, which often pay as well or better then “professional” positions still have trouble attracting people because of the status. Ask people if they would rather make 120k managing a WalMart then 100k as an insurance agent (both jobs requiring similar time requirements) and I would think that most people would take the insurance job because it conveys a sense of status.

  8. bohemian says:

    Gimme the $100g. Those making $250g are just going to waste it on Hummers and Diamonds anyway.

  9. There is only one urge that will trump self=preservation. That is greed.

    I learned that from Adam West in an episode of Batman. Truer words have yet to be spoken.

  10. noquarter says:

    @bohemian: Or by buying houses and driving up the market to such a level that you can’t afford one on your tiny $100k/year.

    Maybe that’s what the people in LA had on their minds when they answered that question. I know it’s what’s on my DC-resident mind.

  11. bohemian says:

    Status can have some beneficial financial return. Living in a nicer neighborhood will get your kids in most cases a better school to go to. Living in that nicer neighborhood will lower your car insurance rate. Having certain white collar jobs lower your car insurance vs. a higher paying blue collar job.
    Showing up to buy a car or other big ticket item looking like your a professional can be an advantage in getting a better deal than if you show up looking like a construction worker.
    Maybe some of this bleeds over into people’s thinking.

  12. snoop-blog says:

    @GitEmSteveDave: don’t forget greed and jealousy go hand in hand.

  13. B says:

    I want to not be waiting in line at the movie theater, but then I’m really impatient.

  14. Tigerman_McCool says:

    Wow, I’m totally opposite. In any of these scenarios, I would pick the one where more money is involved, regardless of other variables. Of course, I’ve never been the type that gave a shit about what anybody else thought.

  15. bohemian says:

    @noquarter: Actually the local realtors were claiming that McMansions were a prime reason that home prices on normal houses kept going up. When the luxury home step up kept going up, the next step down in house went up to be a percentage or set dollar amount lower than the big house. So as the 5 bedroom McMansion added more bells & whistles to sell it even higher it dragged the next level down with it and this trickled down all the way to starter homes.

  16. giantnegro says:

    “Assume for the moment that prices of goods and services will stay the same.”

    Who cares what I think about being poorer than everyone else, it’s what the women think about me being poorer than everyone else that’s going to drive my decision.

    Isn’t this essentially what Woody Allen’s character was doing in the 1967’casino royale’?

  17. Cerb says:

    @cobaltthorium:

    QFMFT!

    And i have little pity when these people bankrupt themselves trying to compete with the Jones’

  18. @snoop-blog: I don’t think I agree with that. But that’s just me.

  19. kepler11 says:

    this is a classic result — people often choose an option that is, on an absolute scale, less good, just so that they come out better in comparison to someone else. However, the more updated interpretation is that in a small group this is actually somewhat rational, because your standing in the group is not based on absolute wealth, but relative wealth compared to your peers. It sometimes is better to have less, if it means that you still gain more than your competitors.

    However, when you take the behavior to larger environments and instances where information is imperfect, this also leads to behavior that is easily distorted by false information. Your choice in such a case could be influenced just by a perception (not reality) that someone gains more than you if you choose the “worse” option. You choose something absolutely worse for yourself, and do not prevent someone else from receiving the better option either. So, by selectively having or relying on bad info, you can come out worse in every sense.

  20. B says:

    Of course, the problem with this test is the value of money isn’t constant. having $100 in a world where everybody else gets nothing is actually worth more than having $150 in a world where somebody else gets $1000. Say, for example, that after going into the theater, there’s an auction for a signed movie poster or some other valuable object, where each of the theater goers can only bid cash for it. Being person A in that case would be advantageous. Same thing goes for making 50,000 vs making 100K. We’re pretending that the price of goods and services will stay constant, but the economy doesn’t work that way.

  21. darkened says:

    @snoop-blog: They see me rollin’ they hatin’

  22. LatherRinseRepeat says:

    Isn’t this what “keeping up with the Joneses” is about? People do things to make themselves look better than others. Or at least try to make themselves fit in with a certain crowd.

  23. rbb says:

    And this is why the tv show “Deal or No Deal” succeeds. I end up rooting against most of the contestants because they get to greedy giving up the “bird in hand” for “two in the bush.”

  24. chiieddy says:

    There was a very good article in Money Magazine about keeping up with the Joneses a few months ago. They took 3 families who were all neighbors, interviewed them on their perception on the other families’ wealth. Turns out the family that saw themselves doing doing the worst was in the best financial health.

  25. iheartconsumerist says:

    If you find this sort of stuff interesting then you may just be a behavioral economist in hiding. I highly recommend the book “Why smart people make big money mistakes and how to correct them” – Long title, good book. The first scenario shown above appears in the book along with a lot of other really good ones.

  26. Tracy Ham and Eggs says:

    This is easily framed a different way, and I bet you would get very different results. Ask those same people in LA if they would rather make an nice income there, say 100k, or 75k in Des Moines. While that 75k will go a lot further in Iowa, and would fit more into the 50k/25k question, I bet most people in LA would rather live in LA and make the larger, if less valuable, 100k.

  27. kimsama says:

    Even though I would have picked the options where I got more money, too, I think another element that you all may want to consider is the power that comes with a relatively large salary.

    Someone who makes double what others make can be a big-shot in their town, and for some people, that’s preferable to making more money in an environment where they are relatively low-paid. Having a decent sum when you have more than others means you can have “fuck you” money, whereas having a lot of money where others have 150% more means no “fuck you” money.

  28. Trai_Dep says:

    Before people get TOO smug with the LA-hating, this finding is consistent across Western societies in a wide variety of situations.
    It’s one of the key critiques against the Free Market Uber Alles arguments: people don’t behave as you’d expect in a clean, isolated economists’ laboratory. Life is muddier at times. The Laissez-Faire approach IS good for some things, but in general, it fails when you always expect rational actors. It’s why sensible regulation is needed.

  29. loganmo says:

    This is actually a well-established concept already in economics-it is known as prospect theory. See the wiki for a decent description of it-[en.wikipedia.org] Note, this is a hypothesis based on empirical studies, not merely the ponderings of old dead white men. The empirical studies have shown a variety of counter-intuitive and interesting results…..the main jist of it is that the extent to which a person is risk averse or risk accepteing is largely based on the circumstances-which challenges non-behavioral economic thinking which things that all people always try to maximize their utility, regardless of anything else.

  30. loganmo says:

    Oh, and btw, the studies on prospect theory HAVE shown that background (gender, region of origin, etc) do make a difference in determining economic decision making in this regard.

  31. That70sHeidi says:

    I think it’s funny the perception of Angelenos. Contrary to shows like The Hills and hell, anything on TV, most people are very very normal, average, nothing special or haughty or rich. It’s actually refreshing to look around and usually see people doing “about the same” as you, whether it’s in line at the store or on the freeway or whatever. So yes, I can see how making $25K more than those around you would be better than making less than those around you.

    I also think Angelenos are more aware of how little their dollar is worth, especially in the housing market, and how fast one can get in deep debt out there. Making $100K, while a wonderful dream, would probably just lead to headaches and trouble. Whereas, making $50K would be right about right to live comfortably and still be able to say you’re doing ok.

    As for the first question, the feeling of winning vs. the feeling of losing? I’d say it’s worth $50.

  32. PenguinBlue says:

    As someone else touched on, the second question is completely flawed.

    The value of fiat money is relative to the amount of money in the economy (e.g. if everyone in the world suddenly doubled their net worths and incomes, prices would double and no one would be better off).

    Thus, in the real world, you actually would be better off making $50,000 while everyone else made $25,000 than making $100,000 while everyone else made $250,000.

  33. BigBoat says:

    Let’s not disparage the people who choose status, and don’t be so quick to assume you would. People reading the Consumerist, in an article labeled “weird” may just have reasons to make the minority choice. I hope I would too were the situation to come up, but who knows?

  34. csdiego says:

    @noquarter: Exactly. A 100% increase in income is meaningless if everyone else is so much wealthier that you can’t afford a house.

    Now that I think of it, that’s more or less the position I’m in: I make about twice what my dad made as a professional at my age (unadjusted for inflation). But while he could support a family of six in a small town, I can barely support myself in the big mean city (DC here too).

  35. csdiego says:

    @bohemian: The trouble is that during the housing boom the only types of homes that were being added to the housing supply were McMansions, and luxury condos with granite SubZero yadda yadda. In theory the luxury housing would melt into the housing mix and everybody would be able to trade up a step. What we got instead was a pyramid scheme in which every home owner felt he had hit the jackpot and was suddenly worth a million on paper; now that the bottom has fallen out, nobody wants to give up that paper wealth.

  36. RGISMYFAVORITECANADIANMORMON says:

    I only got halfway through the comments before I gave up, so apologies if I’m duplicating.

    These particular questions are phrased in a way that makes you want the one that instantaneously seems like a better deal. It’s sort of like 4 quarters versus a dollar (but not for kids).

    It might not be the better option, but on-the-spot, I often think in fractions and proportions, not necessarily the final amount. If one seems like twice as much, it doesn’t matter if the second option is 50 dollars more in your pocket.

    That probably makes me as stupid as the rest of America, but I bet it has a lot to do with the findings of this survey.

  37. Chris Walters says:

    On a related note, I just read a cool article on Slate about wealth signaling and conspicuous consumption. The hook of the article is the question of race and why it seems to have an impact on wealth signal activity levels–turns out it’s environment, i.e. who your neighbors are, that triggers all that status-seeking behavior.

    They also find that the further a family of either race slips behind the average income of nearby households of the same race (becoming too poor to compete in the signaling game), the less it spends on these visible goods.

    [www.slate.com]

  38. Rectilinear Propagation says:

    Would you rather earn $50,000 a year while other people make $25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same.

    So not only would I be poor comparison to everyone else, I’d be the ONLY poor person period. People doing the same work I’m doing would be making 150% more than me. People doing less work would still be making 150% more than me.

    Would I rather make more money or would I rather my work be valued? Hmmm…

  39. yagisencho says:

    All other things being equal, I’ll take the extra money. My coworkers can enjoy their Lotus, BMW, and Hummer vehicles. I’ll drive my econo-box and continue paying down the mortgage on our home.

  40. JulesWinnfield says:

    As for the “average” person, George Carlin nailed it: “Think of how stupid the average person is, and realize half of them are stupider than that.”

  41. johnva says:

    @JulesWinnfield: I understand it’s a joke, but that quote has always bugged me because it’s actually probably wrong. Half of people are stupider than the median, but not necessarily the average.

  42. strathmeyer says:

    @PenguinBlue: Indeed, this would be reflected by inflation; if I earned $100,000 a year while everyone else earned $250,000 how much would a Playstation 3 cost?

    The first question seems to separate smart and stupid people. The second question seems to put the smartest and stupidest in the same group?

  43. no.no.notorious says:

    @randotheking: same here. i don’t care about status. status can be easily disguised with a little know-how

  44. Tzepish says:

    @barfoo: In your example, I’m even *more* likely to choose the minority option ($50,001 while everyone else gets $100,000). Why would I want to deprive everyone in the world of $75,000 a year?

  45. KarmaChameleon says:

    @Tigerman_McCool: Co-signed. Fuck the Joneses, I’m too busy paying my bills and trying to live within my means to care about stupid crap like that. Attitudes like the ones reflected in this article are why our economy is in the toilet behind this subprime BS. People using their homes as ATMs for “status”.

  46. KarmaChameleon says:

    @That70sHeidi: I have the same complaint being a native New Yorker. All of us–hell, even most of us–don’t live like Sex and the City. We can’t afford it. Eevn the SatC types can’t afford it, that’s why they’re all moving to the “lowly” outer boroughs and driving up rents in the pursuit of their hipster lifestyles.

  47. Jamie Beckland says:

    If you answered that you would take more cash for less status, then you aren’t following this out to the end of the thought exercise.

    By taking your extra money, pay off your mortgage, living cheaply, and retiring early, you will still be able to do much less than others who have been making more than you for some time.

    The whole idea of delayed gratification from saving and investing is that some day you will be able to enjoy “the good life” – which your neighbors are enjoying right now.

    If you have more money than everyone else, you will be happier. Because the study of happiness tells us that we are relativists. That’s why our grandparents were happier than we are. There was less income disparity in the past, which meant that no one coveted an iphone because nobody had one.

  48. Jesse in Japan says:

    50,000 dollars a year will go a hell of a lot further if you live in Kansas City than 100,000 dollars a year will in New York or San Francisco.

  49. Abor33 says:

    There’s a scientific america on this this experiment but I forgot what episode.

    They had a computer set up with opponants. You would each get 3 agree or disagree? Opponant gets 5 you get 1 agree or disagree? Scenarios like this and most people picked situations in where they got less money but screwed over the other person.

    However things were a little bit different if the opponant was a computer instead of a person.

    Just goes to show we’re all competitive beings!