Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

Why people believe weird things about money
L.A. Times ^ | January 13, 2008 | Michael Shermer

Posted on 01/16/2008 1:25:06 AM PST by forkinsocket

Evolution accounts for a lot of our strange ideas about finances.

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?

This result is one among thousands of experiments in behavioral economics, neuroeconomics and evolutionary economics conclusively demonstrating that we are every bit as irrational when it comes to money as we are in most other aspects of our lives. In this case, relative social ranking trumps absolute financial status. Here's a related thought experiment. 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.

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.

(Excerpt) Read more at latimes.com ...


TOPICS: Culture/Society; Miscellaneous
KEYWORDS: economics; evolution; experiments; monkeys
This research goes a long way toward debunking one of the biggest myths in all of psychology and economics, known as "Homo economicus." This is the theory that "economic man" is rational, self-maximizing and efficient in making choices.
1 posted on 01/16/2008 1:25:09 AM PST by forkinsocket
[ Post Reply | Private Reply | View Replies]

To: forkinsocket

Apparently people are selfish morons. What’s new there?


2 posted on 01/16/2008 1:29:15 AM PST by Jedi Master Pikachu ( What is your take on Acts 15:20 (abstaining from blood) about eating meat? Could you freepmail?)
[ Post Reply | Private Reply | To 1 | View Replies]

To: forkinsocket

Wow. The LA Times admits that liberals are irrational.


3 posted on 01/16/2008 1:33:34 AM PST by counterpunch (GOP Convention '08 Go For Brokered!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: forkinsocket

Hmm I guess this is the LA times on why California deserves the biggest Federal bailout of $$$. They don’t want to feel any regret!


4 posted on 01/16/2008 1:34:31 AM PST by Eyes Unclouded (We won't ever free our guns but be sure we'll let them triggers go....)
[ Post Reply | Private Reply | To 1 | View Replies]

To: forkinsocket
Take the 100k and then separate the fools from as much of their 250k as possible.

Hello??

5 posted on 01/16/2008 1:43:40 AM PST by Berlin_Freeper (ETERNAL SHAME on the Treasonous and Immoral Democrats!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: forkinsocket
"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."

I'm convinced that there's a physical reason why I cannot get any pleasure from gambling.

I would be perfectly happy, and gracious, if I won Powerball or something like that. But, losing a dollar on a lottery ticket would just piss me off and I won't do it.

I remember learning to play poker at school as a teenager. We played for pennies or matchsticks.

I didn't like losing matchsticks. They weren't even my matchsticks.

I don't mind losing at cribbage, backgammon, Scrabble, etc. However, if I have to physically give up something is puts me in a black mood.

Of course, I'm in a foul mood anyway because I had to make quarterly tax payments yesterday...

6 posted on 01/16/2008 1:51:05 AM PST by billorites (freepo ergo sum)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Berlin_Freeper
"Take the 100k and then separate the fools from as much of their 250k as possible."

People are irrational and a little crazy when it comes to money.

In graduate school I supported myself for several years by doing emergency psychiatric evaluations in local emergency rooms. I'd be called in to assess whether someone was suicidal, depressed, psychotic or had a substance abuse issue, etc. Part of any psych assessment is establishing current mental status and determining stressors in the environment such as money or work problems.

So one asks very personal questions about people's sex life and libido. Similarly, you ask about financial situation as well.

It always has surprised me that people, of any age and social background, disclose information about their sexuality in a very matter of fact manner. I suppose because they think it's something the doctors have some right to know.

However, ask people about their finances and they'll stiffen up, push you away and be markedly uncomfortable. Very strange indeed.

7 posted on 01/16/2008 2:00:57 AM PST by billorites (freepo ergo sum)
[ Post Reply | Private Reply | To 5 | View Replies]

To: forkinsocket

Shermer wrote:
It is extremely unlikely that this common trait would have evolved ...

-—Those 11 words are correct. he shoulda just quit while he was ahead!!!!


8 posted on 01/16/2008 2:15:13 AM PST by guitarist
[ Post Reply | Private Reply | To 1 | View Replies]

To: billorites

I won’t say much about either... ;-)


9 posted on 01/16/2008 2:18:32 AM PST by DB
[ Post Reply | Private Reply | To 7 | View Replies]

To: forkinsocket

These results are not irrational in light of evolutionary theory. Reproductive opportunities accrue to society’s “winners”. If you make 100K and everyone else makes $250K then you will fear drinking your champagne alone.


10 posted on 01/16/2008 2:47:43 AM PST by rogue yam
[ Post Reply | Private Reply | To 1 | View Replies]

To: forkinsocket
There's an old Soviet joke about this character trait (in the joke it's aimed at Russians) of not wanting the other guy to succeed, lest he succeed where you fail.
There's a man who visits Hell. In Hell, there are three giant cauldrons in which the sinners are being boiled. On the rim of one stands a regiment of demons, shoulder to shoulder, constantly using their pitchforks to smack down the sinners who are trying to escape. On the rim of the second walk a few demons, who occasionally whack someone down. The rim of the third is empty, but no-one is getting out.

"What's going on here?," the visitor asks. "There are three kinds of people," the Devil says, "Jews, Poles, and Russians. Jews are in the first cauldron. When one looks like he's trying to escape, all the rest follow him. We need a lot of demons to manage them."

"Poles are in the second cauldron. Occasionally someone is trying to escape, but the others don't pay any attention. It takes just a few demons to deal with this kind."

"The third cauldron contains Russians: When one is starting to escape, all the others drag him back down by the ankles."


11 posted on 01/16/2008 3:15:53 AM PST by FreedomCalls (Texas: "We close at five.")
[ Post Reply | Private Reply | To 1 | View Replies]

To: forkinsocket

How irrational is that?
************************************
It’s not irrational at all if you discount the (silly) premise that prices would remain unchanged with 5X the M3 money supply chasing the same goods.


12 posted on 01/16/2008 3:20:45 AM PST by Neidermeyer
[ Post Reply | Private Reply | To 1 | View Replies]

To: forkinsocket
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.

But they won't stay the same. A rising market floats all ships, etc., so if income is doubled, then goods and services have to pay those higher wages, and the costs go up.

A person in an economy is better off making twice the average income than a person making less than half the average income, on a peer-to-peer basis.

For example, we bought our first house in a low-income area, and elected to commute to a high-income area to work. We got more house and less taxes for our money, and in a few years were able to save enough to get the house we really wanted. If the average income in a system is halved, then higher prices are not supported.

In our case it had nothing to do with peer rivalry-It was a sound economic strategy that paid off.

13 posted on 01/16/2008 3:54:14 AM PST by Gorzaloon
[ Post Reply | Private Reply | To 1 | View Replies]

To: billorites
However, ask people [in an emergency room] about their finances and they'll stiffen up, push you away and be markedly uncomfortable. Very strange indeed.

Maybe they didn't have insurance, and they thought you were sizing them up to pay the bill.
14 posted on 01/16/2008 4:00:06 AM PST by Dr. Sivana (Not a newbie, I just wanted a new screen name.)
[ Post Reply | Private Reply | To 7 | View Replies]

To: forkinsocket

That explains why my career-student brother in law who just completed his doctorate is accepting a $40k a year job.


15 posted on 01/16/2008 4:06:40 AM PST by Rocketwolf68 (Bring back the crusades)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Gorzaloon

I think that you sort of missed the point of this exercise...

Actually, Neal Boortz talked about this sort of study (it may have been the same one, for all I know) some weeks ago.

This whole thing is more about class warfare and envy than anything else. And that many people would rather see others fail, even if it winds up costing them in both the sort and long term!

Mark


16 posted on 01/16/2008 4:16:14 AM PST by MarkL
[ Post Reply | Private Reply | To 13 | View Replies]

To: MarkL
I think that you sort of missed the point of this exercise......This whole thing is more about class warfare and envy than anything else. And that many people would rather see others fail, even if it winds up costing them in both the sort and long term!

Ugh, this is one of those times I am proud to have missed the point, then..that did not get through to me.

But I have a neighbor who is a jeweller, and he told me of a revolting side of human nature. People gladly pay a premium for a one-of-a-kind piece if they are sure their neighbor can NEVER have one like it, and KNOWS they cannot, at any price.

I am grateful not to know these people.

17 posted on 01/16/2008 5:45:40 AM PST by Gorzaloon
[ Post Reply | Private Reply | To 16 | View Replies]

To: forkinsocket

Just goes to show that the mantra of the Yuppies was right.

Most people believe: He who has the most toys, wins!


18 posted on 01/16/2008 9:45:06 AM PST by wildbill
[ Post Reply | Private Reply | To 1 | View Replies]

To: Stillwaters
A very interesting read.

This research goes a long way toward debunking one of the biggest myths in all of psychology and economics, known as "Homo economicus." This is the theory that "economic man" is rational, self-maximizing and efficient in making choices.

19 posted on 01/16/2008 9:50:24 AM PST by lonevoice (It's always "Apologize to a Muslim Hour"...somewhere)
[ Post Reply | Private Reply | To 1 | View Replies]

To: FreedomCalls

Why don’t lobster pots in Canada need lids?

Because when one of the lobsters tries to climb out, the others pull him down.


20 posted on 01/16/2008 2:50:07 PM PST by Arthur McGowan
[ Post Reply | Private Reply | To 11 | View Replies]

To: forkinsocket

The article asserts that people AREN’T “rational” about “economics.”

The fallacy here is a false reification—i.e., the notion that “economic” choices involve ONLY something called “money” and “goods and services” that are sold by businesses.

As has been pointed out by other posters: The man making half as much as others will have a very hard time finding a wife, whereas the man who is poorer absolutely but wealthier relatively will find a wife easily and enjoy high social status. The fallacy in the question lies in the assumptions about what “goods and services” are actually “for sale” in a society.


21 posted on 01/16/2008 2:56:58 PM PST by Arthur McGowan
[ Post Reply | Private Reply | To 1 | View Replies]

To: forkinsocket
Amazingly, most people said that they would prefer to be A.

Amazingly, it is apparent that most people are idiots...and it is being born out watching this primary season.

22 posted on 01/16/2008 2:59:52 PM PST by Ethrane ("semper consolar")
[ Post Reply | Private Reply | To 1 | View Replies]

To: Berlin_Freeper

My thoughts exactly. Assuming I could still work to earn more money, I’d take the second option.


23 posted on 01/16/2008 3:01:38 PM PST by RockinRight (Huck(abee, not the Freeper Huck) Sucks.)
[ Post Reply | Private Reply | To 5 | View Replies]

To: Gorzaloon

Exactly. Because the price of goods is related to the amount of money chasing those goods, under the first option prices would stabilize to a point where you would enjoy a much greater standard of living than under the second. While your nominal income is greater in the second option, your real income is greater in the first.


24 posted on 01/16/2008 3:56:33 PM PST by scarface367 (Why are protectionists so stupid when it comes to economics?)
[ Post Reply | Private Reply | To 13 | View Replies]

To: forkinsocket
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.

Also, assume that monkeys are flying out of my butt.

25 posted on 01/16/2008 8:53:12 PM PST by Sloth (I feel real bad for deaf people, cause they have no way of knowing when microwave popcorn is done.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: forkinsocket

I would say that people interviewed are implicitly rejecting the assumption that “oh lets hold inflation fixed”. Bwhaha. Yeah right.

Very unrealistic.


26 posted on 01/26/2008 5:17:56 PM PST by Jason Kauppinen
[ Post Reply | Private Reply | To 1 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson