Tuesday, July 19, 2011

Research on Relative Preferences

From an Newsweek article on winning:
An economist at the University of Bonn has shown that test subjects who receive a given reward for a task enjoy it significantly more if other subjects fail or do worse—a finding that upends traditional economic theories that absolute reward is a person’s central motivation.

Alas, they didn't give the full citation.

From the journal Science, an fMRI study on the effects of absolute and relative rewards:
Despite the importance of distinguishing the roles of absolute and relative income levels for subjective well-being, and thus for human decision-making, the underlying neurobiological basis of social comparison is not well understood...Similarly, context dependency of ventral striatal responses in humans has been demonstrated with fMRI...Our study introduces two critical new aspects of relative reward processing in the ventral striatum. First, it shows that social context is an important factor for reward processing. Second, in contrast to previous studies, the differences in reward activation cannot be explained by a mismatch between expected and received reward.

Another on social signaling:
Students in the award treatment were offered a congratulatory card from the organization honoring the best performance. The award was purely symbolic in order to ensure that any behavioral effect is driven by non-material benefits. Our results show that students in the award treatment outperform students in the control treatment by about 12 percent on average.

The unexpected implication of this research, which is growing, is that there is no risk premium. Ignore at your peril.


LetUsHavePeace said...



Anonymous said...

Great title "When Equality is Unfair"

Of course, to anyone thinking about it for two seconds, who isn't an avowed communist or Barack Obama (or the considerable overlap therein), it's immediately obvious that "equality" would be unfair in almost all situations. The fascinating part of this paper is that workers seem to be really good at noticing.

Mercury said...

I don't think a person's sense of well-being as derived from things like relative income/wealth levels (I have some, Joe has more, Sue has almost none etc.) is quite the same things as a win/didn't win situation such as is the case after a contest.

Surely the satisfaction of having won a race after long hours of training and preparation is more satisfying than simply the knowledge that everyone else didn't win.

Making sure everyone has the same amount of gold may mitigate envy in some respects but I don't think the ploy of giving (competition) trophies to everyone fools the recipients beyond a very young age.

How rich someone can make his or herself usually depends on many factors that different people tend to rate differently on the "fairness" scale. Who the fastest runner is...is much more self evident and for that reason probably provokes much less envy/anger issues in people.

Eric Falkenstein said...

The worthless awards were scarce: they had no monetary value, but were given to the top performers. Think of 'employee of the month', there can only be one. As a signal, were valuable to status.