Why Money is Part of Human Nature: Money as Both Tool and Drug
It's no surprise that people want money - we've all got bills to pay. It's also no surprise that money is useful - it would be irritating to pay the electricity bill in corn, goats or some other non-monetary quid pro quo. Originally economists argued that the fact that money is so useful explains why we're interested in it. But when you think about it, the fact that money is so useful doesn't fully explain people's behaviour.
Why does a person who is already rolling in money want more?Think about how obsessed people can become with money, beyond its instrumental use, beyond rationality, beyond any easy explanation. Why does a person who is already rolling in money want more? Indeed, why do people whose lives are already comfortable make sacrifices in other areas of their lives - family, friendships and their own sanity - just to get more cash? Especially when, objectively, they appear to be dollars that they don't need.
Professors Stephen Lea and Paul Webley from the University of Exeter argue that people's actual behaviour towards money can't be explained solely by the fact that it is useful - what they refer to as 'tool theory' (Lea & Webley, 2006). There seems to be something more going on. Money provokes people into all sorts of bizarre behaviour that can't easily be explained in terms of its function purely as a tool. Here are five examples Lea and Webley provide:
- Big money
Money literally looms large in our minds - we seem to imbue it with a special status. Bruner and Goodman (1947) found that children actually perceive money to be physically larger than other objects that are actually the same size. Furnham (1983) found that at a time of high inflation, people consistently thought that old pound notes were physically bigger than the new ones. They were, of course, exactly the same size but people's knowledge that the currency used to be worth more had become physical in their minds. - Phased by face value
The real, useful value of money changes all the time, e.g. one hundred years ago one pound or one dollar bought a lot more than it does now. Despite this people respond to the face value of money irrespective of its real worth. The introduction in recent years of the Euro across Europe has shown the power of this illusion. Many Europeans have suddenly been faced with a new currency whose face-value is quite different to their old currency. Studies have shown that people are likely to overestimate the real value of money that has a higher face value, and underestimate the real value of money that has a lower face value (e.g. Gamble et al., 2002). - People like money's form
People are attached to the actual form that money takes and will often resist when innovations are introduced. British people have strongly resisted the introduction of the Euro and Americans continue to reject the introduction of a dollar coin to replace the dollar bill. - Being emotional about cash
Not only are we particular about money's form, we also have an emotional relationship with it. Psychologists have measured our attitudes towards cash in many different ways, but most find there is a considerable emotional component. When people describe their attitudes to money, it's more than just its utility that's important - people actually either love it or hate it. - When cash is not acceptable
The special kind of relationship people have with money is underlined by the times when it can't be used. Money is often not acceptable as a gift and almost never in sexual relationships; talk of money is also frowned on in high art, religion and education. Similarly there is a taboo about money buying political office (although it clearly does buy political office indirectly).
Money as tool and drug
What all these examples show is that people's behaviour with and attitudes towards money reach, in many circumstances, beyond its actual utility. People's thoughts and behaviour towards money can't easily be explained by it being simply an instrument, so how can we understand it?Part of the attraction of money, like drugs, is that it changes how we feel, but this change has no biological or evolutionary significance.Professors Lea and Webley argue that money is not just a tool for us, it also acts like a drug on the mind. Drugs act on the central nervous system to create mental states that do not meet some kind of function in the world in the same way that sex or food does. For example, the feeling of hunger drives us to find food, and we need food to survive, so hunger has an evolutionary function.
But if money is like an addictive drug, then where did we acquire this addiction, when did we pick up the taste for money? Lea and Webley suggest two evolutionary roots:
- Trading thrills: As a social species helping each other out has a long evolutionary history. Humans have learnt to exchange items or services for the benefit of both parties. It's plausible that those who traded more successfully were more likely to survive while those who stuck with what they had tended to die out. Trade gives us a buzz, and money, as the most potent catalyst for exchange, gives us vicarious pleasure.
- Money as a way of keeping score: Humans love to play. Compared to other animals, humans take a long time to grow up, and while growing up, and still afterwards, we have a strong instinct for play. Perhaps our propensity for play naturally provides part of the scaffolding on which we have built our addiction to money. Money turns out to be one of the most addictive games we ever invented.
Can't get enough of that money
Money is more than just a useful tool, as some economists have argued; while money is certainly useful, human behaviour towards it can't be explained just by its utility. The drug metaphor helps demonstrate how the motivation for money often extends past its actual utility. This ties in with many sociological analyses that emphasise money's social meaning and symbolic nature over and above its simple utilitarian applications.Culture on its own is not powerful enough to explain the human motivation for money.Thinking of money as a drug highlights the biological basis of money. An evolutionary account underlines this biological perspective by suggesting that money addiction might be built on our drive to trade and play.
What Lea and Webley are implicitly arguing against is a purely cultural understanding of humans' relationship with money. Their view is that culture on its own is not powerful enough to explain the human motivation for money. Money, they argue, whether for good or evil, is part of human nature.
» Find out more about the psychology of money: how people balance up social versus financial thinking about money, the power of 'free!' and the six quirks of ownership.
[Image credit: bryan chan & -sel]
References
Bruner, J. S. & Goodman, C. C. (1947) Value and need as organising factors in perception. Journal of Abnormal and Social Psychology, 42, 33-44.
Furnham, A. (1983) Inflation and the estimated sizes of notes. Journal of Economic Psychology, 4, 349-52.
Gamble, A., Garling, T., Charlton, J. & Ranyard, R. (2002). Euro-illusion: Psychological insights into price evaluations with a unitary currency. European Psychologist, 7, 302-311.
Lea, S. E. G., & Webley, P. (2006). Money as tool, money as drug: The biological psychology of a strong incentive. Behavioral and Brain Sciences, 29(02), 161-209.
Labels: Money
Why The Chinese Are Getting Richer But Not Happier
The rapidly developing Chinese economy has a hard lesson to teach developed nations about the happiness of the majority.
We all have an intuitive sense that the society we live in has a huge effect on our lives. It's almost impossible not be influenced by the way other people treat us, the values they hold and the way they behave.
But because we are so used to these effects they become subliminal, automatic - they're so embedded in our everyday lives that we're unaware of them. Sometimes it's only possible to understand our own society by looking at another. One of the most interesting, because of its incredible rate of change, is China.
Data examined in a new study to be published in the Journal of Happiness Studies highlights a striking paradox in the expanding Chinese economy. While the Chinese are getting richer, they don't seem to be getting happier - in fact they're getting more unhappy. This paradox may have much to teach other expanding societies about the perils of financial inequality.
China, 1990-2000
In ten years the average rural wage in China more than tripled, while in urban areas it quadrupled.Between 1990 and 2000 the Chinese saw an incredible boom in their economy such that millions were pulled up out of poverty to earn a decent living wage. In ten years the average rural wage in China more than tripled, while in urban areas it quadrupled.
Set against this impressive financial boom is a surprising story coming out of research into Chinese happiness over this decade. In 1990 28% of Chinese people described themselves as very happy, but by 2000 this figure had dropped to 12%. When asked about their satisfaction with life, the story was the same: in 1990 the average was 7.3 (out of 10), but by 2000 it had dropped to 6.5. This drop was seen across rural and urban China and in almost every income bracket.
Money has the biggest positive effect on happiness among the poor.This finding is surprising because it's the exact opposite of what psychological research on the happiness of societies would predict. Money has the biggest positive effect on happiness among the poor. When you're already relatively well-off, more money makes less difference.
So what can explain the Chinese experience of decreasing happiness and life satisfaction alongside so many being released from poverty? In a new article Professor Hilke Brockmann from Jacobs University in Bremen, Germany and colleagues argue that the answer largely comes down to an increasing disparity between rich and poor (Brockmann, Delhey, Welzel & Hao, In Press).
In China, like many other societies around the world, the rich have accelerated away from the mean income level rapidly, leaving the rest of society looking on jealously. It's just that in China it has happened very quickly and so the results are particularly pronounced.
While many Chinese are getting richer in absolute terms, they are not getting richer in relative terms; on the contrary, relatively they feel poorer. As average income levels are pulled higher by the small minority of rich and super-rich, more and more people feel poorer in comparison. As a result they feel less satisfied with life and less happy. This is exactly what seems to have happened in China in the decade between 1990 and 2000.
Alternative explanations
Societies are notoriously difficult to analyse because of their incredible complexity.While this seems like a plausible explanation for the paradox produced by rising income and declining happiness, it is not the only explanation. Societies are notoriously difficult to analyse because of their incredible complexity. Plus, social scientists often have to rely on correlational data which is always open to different interpretations. It's difficult to really be sure that rising inequalities are actually causing lower average levels of happiness and life satisfaction.
Professor Hilke Brockmann and colleagues, therefore, used the data to examine two other plausible explanations for declining levels of happiness:
- Anomie. This is the sociological idea that unhappiness in society is linked to rapid changes which can decrease how much control people feel they have over their own lives. As China has undergone such rapid changes, anomie is a prime candidate for lower levels of happiness.
- Political disaffection. The Chinese have good reason for political disaffection: corruption is rife, freedom is limited and democracy is denied.
In both 1990 and 2000 people were asked questions which accessed all three possible explanations of declining life satisfaction levels. These possible explanations, along with other factors such as self-rated health, marriage, age and gender, were then statistically compared to assess which factors best predicted people's satisfaction with life.
The results showed that in both rural and urban China in 1990 financial worries played practically no part in predicting life satisfaction or any of the other measures. In 1990 financial dissatisfaction had little effect on how satisfied people were with life. Life satisfaction was explained by whether people had a partner or how subjectively powerless they felt (a question designed to access anomie).
But by 2000 the picture had changed dramatically with financial dissatisfaction becoming one of the leading predictors of people's life satisfaction, or rather lack of satisfaction. While subjective powerlessness was still important, no significant changes were seen in this across the decade. This suggests that it really is the change in relative income levels that is causing the decline in people's satisfaction with life, compared to the other two possible explanations.
Frustrated achievers
Professor Hilke Brockmann and colleagues use the term 'frustrated achievers' to describe a huge swathe of Chinese society who are now doing much better in absolute terms. But because their position relative to the average is declining, they feel less satisfied with life.
It is another reminder how, when we think about money, what counts is relativity.This idea of frustrated achievers might also be relevant outside rapidly growing economies like China. In countries where the gap between rich and poor is already large, and still growing, it probably describes large groups of society who look at the rich and wonder what they have done wrong; despite the fact the answer is probably: nothing.
It is another reminder how, when we think about money, what counts is relativity. Humans are hard- (and soft-) wired to be social creatures, we can't avoid comparing ourselves to others, no matter how hard we try. In societies where the rich are very rich, the relative differences are shoved in our faces. And it never feels good to be reminded we've got less than others.
» Read more on the science of happiness.
» Read more on the psychology of money.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
[Image credit: Saad Akhtar]
Reference
Brockmann, H., Delhey, J., Welzel, C., Hao, Y. (In Press). The China Puzzle: Falling Happiness in a Rising Economy. Journal of Happiness Studies.
Money and Self-Control: The Battle Between Thoughts and Emotions
There are two sets of answers to the question of how we decide whether to spend or save, hoard or splurge. In the first set of answers humans are seen as rational, logical creatures who make decisions about money by carefully weighing up the present against the future. People try to balance how useful it is to spend the money now, compared to how useful it will be to spend the money later.
And for the phrase 'how useful' you can substitute, say: 'how happy it makes you/someone else' or 'the financial advantage you would gain'. It's all about trade-offs in current emotional, financial or other states in the moment compared to how you imagine the future.
This view of people exercising the wisdom of Solomon is dying fast.This view of people exercising the wisdom of Solomon is dying fast. This is simply because it doesn't fully explain how people actually behave. Nowadays amongst researchers there's much less emphasis on people calculating usefulness - either in the moment or future usefulness - and more on how our self-control and emotions interact at the actual moment of decision-making (Camerer, Loewenstein & Prelec, 2005).
Reason versus emotion
New perspectives on how our self-control interacts with our spending see a battle between impulsive, emotional processes and far-sighted planning processes. One part of us is saying: "Buy it, you'll feel real good!" and another part is saying: "No, we need that money to pay the rent!"
Findings from this type of research are only just starting to emerge, but here are some fascinating highlights on how our self-control works:
- Increased cognitive load decreases self-control. This is something marketers are well-aware of: distracted people are more likely to spend money. Most shops are filled with shiny, complicated distractions - bright colours, music and 'incredible offers' - designed to confuse us and open our wallets.
- Our supply of self-control is limited. Studies show that our self-control is actually sapped each time we use it (Baumeister & Vohs, 2003). It's also sapped, predictably, by alcohol, lack of sleep and stress.
And how our self-control is affected by our emotions:
- Sadness makes us want a change (any change). Sadness may well increase the chance we want to spend. One study found that those who are sad are more likely to want to sell at a lower price and buy at a higher price (Lerner, Small & Loewenstein, 2004).
- Disgust makes us want to get rid of everything. When we're disgusted we want to get rid of the things we have and don't want to buy anything.
- Anxiety makes us want to reduce uncertainty. Anxiety makes us prefer low-risk options (Raghunathan & Pham, 1999).
How to make better decisions with money
At this stage relatively little is known about how our monetary self-control and our emotions interact. Nevertheless there's already some clear practical messages about how to make better decisions about money from these results:
- Self-imposed limits. Research by Professor Dan Ariely (reported in his book Predicatably Irrational) suggests that self-imposed limits can help to increase self-control. Telling other people about these limits will tend to increase our adherence to them. Professor Ariely even suggests a special credit card which only lets you spend money on certain categories of goods (e.g. groceries) up to a certain pre-set limit, then it warns of overspending. Unsurprisingly credit card companies haven't taken up the idea, good though it is.
- Cooling-off periods. Take time to decide about a purchase, especially anything expensive. Not just a few minutes - more like a few hours or days. Many people already do this and it's an extremely effective method of financial decision-making. Emotional states are likely to affect our self-control in all kinds of complicated ways. Sadness may make us more likely to spend, anxiety can make us avoid risks (perhaps risks we should take). Plus our emotions probably have many other effects which remain a mystery.
- Monitor your self-control. The fact that self-control seems to run-down with use suggests we need to monitor its levels. Have you used a lot of self-control recently? Are you tired? Are you about to snap? Again, it might be better to wait until your self-control tank is refilled.
The emotional spender
So it's another nail in the coffin for the rational view of humanity, that we think carefully and logically about the decisions we make with money. Of course we try to do that (sometimes), but we would do better to acknowledge the effect that strictly irrelevant thoughts and emotions can have on us.
However, given how little insight we often have into our own underlying cognitive processes, actually being conscious of our self-control and emotional response is likely to be tricky. In the end we have to fall back on rules of thumb like self-imposed limits and cooling-off periods otherwise our self-control is likely to go out the window.
» Read more on the psychology of money.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
[Image credit: The Queen of Subtle]
References
Baumeister, R. F. & Vohs, K. D. (2003). Willpower, Choice, and Self-control. In: G. F. Loewenstein, D. Read & R. F. Baumeister, (Eds). Time and Decision: Economic and Psychological Perspectives on Intertemporal Choice. New York: Russell Sage Foundation.
Camerer, C., Loewenstein, G., & Prelec, D. (2005). Neuroeconomics: How neuroscience can inform economics. Journal of Economic Literature, 43(1), 9-64.
Lerner, J. S., Small, D. A., & Loewenstein, G. (2004). Heart Strings and Purse Strings. Carryover Effects of Emotions on Economic Decisions. Psychological Science, 15(5), 337-341.
Raghunathan, R., & Pham, M. T. (1999). All negative moods are not equal: Motivational influences of anxiety and sadness on decision making. Organizational Behavior and Human Decision Processes, 79, 56-77.
Do Big Money Bonuses Really Increase Job Performance?
For one thing we have an impressive capacity for fouling ourselves up. An incentive can be both a blessing and a curse because while it should motivate us, it can just as easily psych us out. Actual task performance may suffer because we're obsessing about the money. Also, a bigger prize can make us more tightly focussed, but a tight focus is not useful for some tasks - for example those that involve creativity.
Consequently behavioural economist Professor Dan Ariely and colleagues hypothesised that big bonuses might actually decrease people's performance, and they set out to prove it (Ariely et al., 2004). To make the big bonuses sufficiently 'big' they started out with an experiment in a place where even a psychologist's grant money is a King's ransom: rural India.
There, they recruited local people whose standard of living was low: 26% had no formal education, only half owned TVs, none had a car and only a tiny minority had a telephone in the house. There were three payments levels: 4, 40 or 400 rupees, where 400 rupees was roughly equivalent to a month's salary.
Participants were given eight different tasks testing how the payment levels affected performance. Some tasks involved problem-solving skills, others concentration, and others required creativity:
- Packing quarters: participants had to pack metal pieces into a wooden crate. This required creativity to fit all the pieces inside.
- Simon: an electronic memory game that involves copying the sequence of flashing lights. You can play it here.
- Labyrinth: a game involving tilting a maze to negotiate a ball bearing to the 'finish' position while avoiding traps (holes in the board). This tested motor performance.
In 8 of the 9 tasks, the promise of a bigger bonus actually significantly decreased people's performance.The results surprised even the researchers. In 8 of the 9 tasks, the promise of a bigger bonus actually significantly decreased people's performance. It seemed that rather than motivating participants, the lure of a month's salary was actually putting people off.
While these results were impressive, the researchers wanted to replicate them in the US. So they carried out a similar set of experiments with students at MIT using payment levels of $0, $150 and $300. Even at the top level this was not equivalent to a month's income, but it was still a fair amount of money for students.
Despite a completely different cultural setting, the results were much the same as in India: pay did not increase performance, in fact it lead to worse performance.
This study raises a number of questions about the way monetary incentives are often used to reward performance:
- Should organisations pay big bonuses to improve executives' performance?
- Could the quality of professional sport be significantly improved if huge amounts of money were not riding on the performance of individual players?
- Might some well-paid actors' performances be drastically improved if they didn't receive such disproportionately large compensation?
Set against the minority who receive these types of large performance bonuses, the majority of people get a fixed salary. Perhaps we really shouldn't fiddle about with a system once it works: not just because equality is important but because performances might well be suffering.
» Read more on the psychology of money.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
[Image credit: Refracted Moments]
Reference
Ariely, D., Gneezy, U., Loewenstein, G., & Mazar, N. (2004) Large Stakes and Big Mistakes. CMU Working Paper.
Labels: Money
The 3 Reasons Money Brings Satisfaction But Not Happiness
It seems only natural that happiness should flow from having more money. Even if they don't admit it, people still behave as though it were true. More money means you can have what you want and do what you want. The house you dream of? It's yours. The new car you desire? Here are the keys. The freedom to enjoy your favourite pastimes? Here's your racket, the court is down there, just past the pool.
So the puzzle is this: why do social scientists consistently find only moderate relationships between having more money and being happy? Some have even suggested that this moderate connection might be exaggerated. In reality money might have very little to do with happiness at all.
Most puzzling, though, is that people often seem aware at some level that money won't make them happy. And yet they continue to work away earning money they don't objectively need.
First, though, let's look at the three reasons money doesn't make us happy:
- It's relative income that's important. As I've noted previously, money is relative. It turns out we don't mind so much about our actual level of income, so long as we're earning more than other people around us. Unfortunately as we earn more money we're likely to be surrounded by richer people so we often end up failing to take advantage of the positive comparison.
- Material goods don't make us happy. Acquiring things like houses and cars only have a transient effect on happiness. People's desires for material possessions crank up at the same, or greater rate, than their salaries. Again, this means that despite considerably more luxurious possessions, people end up no happier. There's even evidence that materialism make us less happy.
- People don't shift to enjoyable activities when they are rich. People who earn more money don't spend their time enjoying themselves, they spend their time at work, in activities likely to cause them more stress and tension. This may be because of 'the focusing illusion'. When people think about earning more money they probably imagine they would use the money on recreational activities. In fact, to earn the money, they have to spend more time at work, and commuting to and from work.
The focusing illusion
These three reasons naturally raise the question of why psychological findings are so out of step with people's everyday experience. Surely if money doesn't lead to happiness, most people would have worked that out by now. So why do people still chase the mighty dollar/pound/yen like their lives depended on it?
People with more money and status are just more satisfied with their lives, not happier.Nobel-prize winning psychologist Daniel Kahneman and colleagues put forward the idea that the reason people continue to think money makes them happier is that chasing it leads to conventional achievements (Kahneman et al., 2006). Conventional achievements include things like getting that coveted promotion or being able to afford that big house - in other words things that say loud and clear: hear I am and this is what I can do.
So, when people ask themselves whether money brings happiness, they immediately think of the big promotion and the big house. They conclude that because they have these things, they must be happy. In fact, people with more money and status are just more satisfied with their lives, not happier (before you scoff at this think about whether you'd rather be satisfied or happy).
But how do we know people aren't happier with more money? Well, psychologists have a trick up their sleeves. That trick is called moment-by-moment sampling. The conventional way of asking people about their happiness is using an overall measure. There's evidence that this is inaccurate and ends up tapping satisfaction more than happiness. Instead psychologists have started asking people how they're feeling many times each day, in that precise moment, then adding up these reports.
Higher earners were more likely to experience intense negative emotions and greater arousal during the day.In one example of this type of research 374 workers at 10 different sites in a variety of different jobs were asked how happy they were every 25 minutes over a whole workday (Schnall et al., 1998). The correlation between happiness and income was so tiny, it wasn't statistically significant. Worse, higher earners were more likely to experience intense negative emotions and greater arousal during the day. These types of findings have also been seen in other studies on how earnings affect happiness.
It appears, then, that the focusing illusion might partly explain why we think money makes us happy, when actually it doesn't. This explanation, though, only goes so far. This is because many people know that a more high-powered job means more stress, and perhaps even understand that it won't make them happier, and yet they will still choose the money and the high-powered job. Why? To answer this question we need to zoom out from psychology to social theory.
No alternative to chasing money?
The question that Professor Barry Schwartz asks is why people focus on money to the exclusion of those things that are proven to increase happiness (Schwartz, 2007). Things like doing work that is meaningful to us or improving our social relations. The sad answer that Schwartz gives is that people do not see any alternatives. Everyone knows that it all comes down to money, and to say otherwise is to announce your naivety.
Where are the messages telling us that it's OK not to go all out for cash money? Barely audible.Sure, you don't have to live your life as though you worshipped the acquisition of money, but almost everything tells us we should do. Television, billboards, newspapers, other people: they're all screaming at us to get money. The effect of these messages is to 'crowd out' any other ideas we might have about how to live our lives.
Of course there are alternatives, but where are the role-models for these alternatives? Few and far between. Where are the messages telling us that it's OK not to go all out for cash money? Barely audible.
Money and happiness in a nutshell
So we end up with this: money doesn't make us happy on a day-to-day basis. We are, though, bombarded by messages telling us that we should value money and seek it out. So, like good members of society, we follow the convention.
What will make you feel happy right now?Acquiring money and status makes us feel satisfied with life. Through the 'focusing illusion' we convince ourselves that satisfaction equals happiness. Unfortunately it doesn't. Even though we appear to have everything, we are left feeling that something is missing, but are unable to identify what that thing is.
That thing is simply this: feeling happy. Right now. In the moment.
What will make you feel happy right now?
» Read more on the psychology of money.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
[Image credit: DryIcons]
References
Kahneman, D., Krueger, A. B., Schkade, D., Schwarz, N., & Stone, A. A. (2006). Would You Be Happier If You Were Richer? A Focusing Illusion. Science, 312, 1908-1910.
Schnall, P., Landsbergis, P., Belkic, K., Warren, K., Schwartz, J., & Pickering, T. (1998). Findings In The Cornell University Ambulatory Blood Pressure Worksite Study: A Review. Psychosomatic Medicine, 60, 697.
Schwartz, B. (2007). There Must Be An Alternative. Psychological Inquiry, 18, 48-51.
Labels: Money
6 Quirks of Ownership: How Possessions Bend Our Perceptions
There's no doubt that sellers want to get the best possible price and they also want to introduce some wiggle-room for negotiation. But does this really explain the unrealistic prices people sometimes demand, or is there something else going on?
We're unnaturally drawn to special offers like 30-day money-back guarantees.Similarly, when shopping we're unnaturally drawn to special offers like 30-day money-back guarantees. We'll happily buy a new digital SLR on the basis that we can always return it even though, more often than not, we keep it. On auction sites like EBay we will set ourselves a limit for an item one minute, then, the next with a rueful smile we'll break this limit when a higher bid comes in.
Behavioural economists argue that ownership - whether it's real, partial or virtual - has a strange effect on us. But before I run down the six quirks of ownership, let's see just how big an effect these quirks can have on us under controlled conditions.
The chasm between buyers and sellers
At Duke University, like many others, tickets for the most important basketball tournament of the year are like gold dust. There are so many people fighting over them that they have to be allocated using a lottery system. Consequently, after the lottery is complete, some people suddenly have something that others desperately want. Because of the random allocation, it provides the perfect opportunity for examining the psychology of buying and selling.
Into this ready-made market, researchers Ziv Carmon and Dan Ariely effectively set themselves up as ticket scalpers (Carmon & Ariely, 2000). They sat down with a list of students, some who'd won tickets in the lottery and others who'd lost but naturally still wanted to go to the game. They then started ringing up students who had tickets, along with those who didn't, to see if they could find any common ground on price.
They found an incredible disparity between buyers and sellers.What they found was an incredible disparity between buyers and sellers. The average price which buyers were prepared to lay out for a ticket to a single basketball game was $166. This actually sounds like a pretty good offer given that these are students and that it's only a few hours entertainment.
But it turns out these buyers' offers didn't stand a chance when compared with the expectations of sellers. The average price ticket-owners were prepared to sell their tickets for was a whopping $2,411! Did they really expect anyone to pay that price? Needless to say, no buyers were interested, no matter how desperately they were to see the game.
Six quirks of ownership
Dan Ariely, in his book Predictably Irrational argues that ownership has 6 strange effects on us:
- Ownership increases perceived value to us: As soon as we acquire something we start to develop an attachment to it. Just the sheer fact of ownership increases how much we value it - we seem to develop a relationship with objects.
- We tend to focus on losses: When selling we tend to overlook the money we'll be gaining and focus on the object we'll be losing. Our natural aversion to feeling bad then motivates us to place a higher asking-price on the long-cherished house, car or record collection than the market will bear.
- We assume others share our perspective: Surely potential buyers understand how strongly we feel about our dusty old vinyl records? No, they don't care - in fact they're far more likely to notice how badly we've stored them or what poor taste in music we have.
- Effort increases perceived value: A table I have bought and struggled to build myself has more value to me than the same table I bought, for the same price, ready assembled. Expending our own effort means we've invested ourselves in an object, so it has more perceived value to us. Other people don't recognise this (and there's no reason why they should).
- Virtual ownership: We can even start feeling we own something before we actually do. Dan Ariely argues that the prices people are prepared to pay on auction sites like EBay are often inflated by people's imagined ownership. Once we place our first bid we start to fantasise about ownership. Consequently when other bids come in we ignore our previously stated maximum because we're now starting to value the item more, since we've been thinking about owning it.
- Partial ownership: Marketing executives know the power of ownership so they use all kinds of tricks to encourage partial ownership because it often leads on to full ownership. We don't usually return our furniture within the 30-day money-back guarantee period because we've grown attached to it - it's ours.
Being objective
So the high price we tend to put on our own possessions is not just greed, we really do begin to perceive stuff in a different way once we own it. Unfortunately these biases open us up to all sorts of detrimental effects.
We might set unrealistic prices for things we're trying to sell, resulting in us failing to sell them at all. Or, when buying, we can be suckered into virtual or partial ownership en route to full ownership of something we didn't necessarily want in the first place.
The solution to these problems is trying to think objectively.Of course the solution to these problems is trying to think objectively about our own possessions and those that we'd like to acquire. But that's easier said than done. It's very difficult to be dispassionate when selling something that you treasure and it's easy to form an imaginary relationship with something we want to own.
Theoretically, then, dispassion and objectivity are the keys to fighting the quirks of ownership, but is this enlightened, Zen attitude to ownership really possible in practice? What do you think?
» Read more on the psychology of money.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
[Image credit: DryIcons]
Reference
Carmon, Z., & Ariely, D. (2000). Focusing on the Forgone: How Value Can Appear so Different to Buyers and Sellers. The Journal of Consumer Research, 27(3), 360-370.
Labels: Money
Predictably Irrational by Dan Ariely (Book review)
Classical economics is the story of how humans are rational beings who calmly weigh up the pros and cons of each economic situation before making a logical decision. Many aspects of the way our society works are built on this story of how humans think and behave. Unfortunately classical economics, although interesting, turns out to have some serious problems.
A new generation of social scientists - behavioural economists - are examining the actual ways in which people behave when making economic decisions and it turns out that the truth would have Adam Smith turning in his grave.
One of those leading the charge to educate us about the findings of behavioural economics is Professor Dan Ariely. And crucially he's able to do so without sending us off to sleep.
What emerges is a picture of humanity that is sometimes irrational, but often predictable.In his new book, Predictably Irrational, he uses his light and breezy style to describe studies demonstrating the situations in which we display irrational economic behaviour. What emerges is a picture of humanity that is sometimes irrational, but often predictable. In many ways we are actually distressingly predictable, such as our blind worship of all things 'free' or how we try to avoid difficult comparisons.
Ariely addresses these complicated problems with admirable clarity, which you can sample at his blog. The experiments he describes are all easy to understand and he points to their implications for society and its policy-makers. Sometimes it's tempting to think he's glossing over the hard stuff, but actually he's just succeeding where many academics fail: by speaking plainly.
An optimistic book about how we can escape some of the tricks our mind plays on us.Ariely's mission is to help us understand how our decisions are affected by society, by our emotions and by relativity. And hopefully through this understanding, allow us to escape the habits of economic behaviour we didn't even know we possessed. So what might seem like a pessimistic book about human irrationality, turns out to be an optimistic book about how we can escape some of the tricks our mind plays on us.
If you've been enjoying the articles here on the psychology of money, then you'll enjoy this book - and see where I got the ideas for some of the posts! Highly recommended.
» Buy Predictably Irrational by Dan Ariely from Amazon.com.
» You can hear Ariely talk about his research in this London School of Economics podcast.
» Read more on the psychology of money.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
Labels: Book Reviews, Money
FREE! But at What Price?
We like 'free' because it makes us feel good and there's no downside. But sometimes 'free' tricks us into poor decisions.
There is one magical price that we don't evaluate in the same way as other prices. Unlike the others, this number is guaranteed to make us go mad with desire. It makes us do strange things, it messes with our minds. That price is....FREE!
Imagine you are in the market for an Amazon gift certificate. Consider which of these two offers you would go for (try to do it quickly):
- A $10 gift certificate for FREE!
- A $20 gift certificate costing $7.
If your first instinct is the same as absolutely everyone in a study carried out by Shampan'er and Ariely (2006) you'll take the first option, the free option. Economically, though, this doesn't make any sense. When you look at it you can see that the $20 gift certificate is actually better value: you actually get a $13 gift certificate for free, but this is camouflaged by the question. That word 'free' just shakes all rationality out of us.
Now compare these two offers and decide which you'd prefer:
- A $10 gift certificate costing $1.
- A $20 gift certificate costing $8.
Now if you're like the majority of people (64%) in Shampan'er and Ariely's (2006) study you'll go for the $20 gift certificate.
The rational-mind-confusing power of the word 'free'.Notice that this time the price of each gift certificate has only been increased by $1. The $10 gift certificate has gone from $0 to $1 and the $20 gift certificate has gone from $7 to $8. Yet without the rational-mind-confusing power of the word 'free', most people suddenly realise that the $20 deal is superior, and decide to pay out for a better return.
The emotional power of free
This means the word 'free' is so powerful that we will voluntarily choose a worse deal. Why does this one simple word have such power? Shampan'er and Ariely (2006) argue that there are two major reasons why 'free' is so powerful, and they're both emotional. 'Free' makes us feel good and 'free' has no downside; it we didn't pay we've got nothing to lose if our decision turns out to be wrong. So it's hard to feel bad about 'free'.
To check out the emotional impact of 'free' they asked 243 participants to indicate how happy each of these deals made them:
- A Hershey's bar for free.
- A Hershey's bar for 1 cent.
- A Lindt chocolate (higher quality) for 13 cents.
- A Lindt chocolate (higher quality) for 14 cents.
The pattern of results showed that people felt more positively about the Hershey's bar being free than would be expected by it only being 1 cent cheaper. In comparison people were only slightly more happy when the Lindt chocolate was 1 cent cheaper.
Get free stuff! (when you buy other stuff)
These findings have been well-understood by advertising and marketing professionals for decades. Crow-barring the word 'free' into any deal will usually improve its allure, even when, strictly speaking, you're not really getting anything for free.
Think about the ubiquitous 'buy-one-get-one-free' deals in which you don't really get anything for free - you're just paying half the price. While half-price is good, it doesn't sound as good as free, does it?
Be aware of the seductive power that 'free' holds over your mind - and you might decide you don't want to pay the price.
» Read more on the psychology of money.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
[Image credit: vidiot]
Reference
Shampan'er, K., & Ariely, D. (2006) How Small is Zero Price? The True Value of Free Products. Working Paper 06-16. Federal Reserve Bank of Boston's Research Center for Behavioral Economics and Decision-Making.
Labels: Money
The Psychology of Money
Money seems to have an almost magical effect on us.
Until recently social scientists didn't know much about the psychology of money. That has changed with an explosion of fascinating findings on how it affects our emotions, our personalities, our sexual behaviour, our risk-taking and society at large.
This series of posts looks at what some of the latest findings can tell us about how the psychology of money affects our day-to-day lives. These insights might allow us to better enjoy our money, spend it more wisely and understand how it affects our behaviour.
» All future articles on the psychology of money will be added below, so for future reference, bookmark this page in del.icio.us.
- Whistlestop Tour of Research on the Psychology of Money
- Avoid The Relativity Trap - How Thinking Globally Can Save You Money
- Social Versus Financial Thinking - When Money Makes People Lazy and Selfish
- FREE! But at What Price?
- 6 Quirks of Ownership: How Possessions Bend Our Perceptions
- The 3 Reasons Money Brings Satisfaction But Not Happiness
- Do Big Money Bonuses Really Increase Job Performance?
- Money and Self-Control: The Battle Between Thoughts and Emotions
- Why Money is Part of Human Nature: Money as Both Tool and Drug
You might also be interested in my review of Dan Ariely's book about behavioural economics, Predictably Irrational.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
Labels: Money
Social Versus Financial Thinking - When Money Makes People Lazy and Selfish
Studies show that people inhabit two separate worlds - the social and the financial - and depending on which one is activated, their thoughts and behaviour can change dramatically.
I received a rude awakening about the separation between financial and social worlds a few years ago when I moved flat. A friend agreed to help me move all my stuff across town in the back of a van I'd hired. It took much longer than I'd expected - we were still unloading at midnight - and we were both exhausted by the end.
This wasn't what I'd intended at all - I had grossly misread the situation.We never discussed money beforehand but, after a long day's work, I thought it only fair I give the guy some cash for his efforts. Not only that, it had taken so long I wanted to use the money as a way of apologising. Strangely, though, he seemed unimpressed with it, even though I thought I'd been quite generous. It was obvious I'd really offended him but it wasn't until later that I realised what had been going on.
He had been operating in the social world - he thought he'd been helping me out as a friend. My paying him for his time signalled that I didn't see our relationship as primarily operating in social terms, but rather in financial, market-based terms. This wasn't what I'd intended at all - I had grossly misread the situation.
When money doesn't motivate
This chasm between our social and financial worlds has been explored in two recent studies that uncover fascinating ways in which money affects our thoughts and behaviour. In the first, participants were subjected to one of social scientists' favourite ruses: the apparently pointless task. They were simply asked to drag a circle across a computer screen as many times as they could in five minutes (Heyman & Ariely, 2004).
The experiment compared three different groups in which the payment for this mind-numbing task was as follows:
- Given $5 for participating.
- Given 50 cents for participating.
- Asked to participate 'as a favour'.
Professors Heyman and Ariely argue that people have a mental split between their social and financial worlds.When the researchers looked at how many circles each group, on average, had dragged across the screen, sure enough money was a motivator. Those paid $5 averaged 159 circles into the box, while those paid 50 cents only dragged 101 circles. So far, so obvious. But the interesting result comes with those who were asked to participate 'as a favour'. This group dragged an average of 168 circles into the box. That means the group asked to participate as a favour did about the same amount of 'work' as those paid $5. Why?
Professors Heyman and Ariely argue that people have a mental split between their social and financial worlds. Different rules apply depending on whether people are trading in hard currency, contracts and delivery dates; or, alternatively, in friendships, trust or other social connections.
When the value of a gift doesn't matter
To see how different the rules are in the two worlds, have a look at a second experiment carried out by Heyman and Ariely (2004). Again this involved the circle dragging task, but this time the experimenters wanted to look at the effects of different types of gifts on how hard people would work.
With gifts we move from the financial world back to the social world. The question is: do people work harder if the gift is bigger? In this experiment there were three conditions where participants were given:
- Godiva chocolates (worth about $5).
- A snickers bar (worth about 50 cents).
- Nothing but asked to participate 'as a favour'.
This time there was no statistical difference between the groups - each dragged about the same number of circles: all three groups averages were in the 160s. This shows that in the social world, thank-you gifts don't need to be commensurate with the task performed. Whereas in the financial world, you only get what you pay for.
Just flipping from a 'payment' of 50 cents to a 'gift' of a snickers bar is enough to start people thinking socially, rather than financially. As a result people were more motivated by a gift of worth 50 cents than they were by 50 cents in cash.
Money makes us less socially-minded
It's not just in motivation to perform tasks that money has important effects, it's also in how we behave socially. In the second study, Professor Kathleen Vohs from the University of Minnesota and colleagues wanted to see how people's behaviour changed when they were subliminally primed to think about money (Vohs, Mead & Goode, 2006).
Professor Vohs and colleagues actually carried out seven separate experiments but they all followed the same pattern. First participants were unconsciously prompted to think about money in some way, then some aspect of their behaviour was measured.
The results showed that those who had been subconsciously prompted to think about money donated less.In one experiment, for example, participants had to unscramble phrases, some of which involved money, and others not. On the way out of the lab, participants were told that the University student fund was collecting, and there was a box outside for them to donate if they liked. The results showed that those who had been subconsciously prompted to think about money donated less.
These results were repeated in the six other scenarios, where people reminded about money, compared to others, were more likely to:
- Believe others should be more self-sufficient.
- Offer other people who need it less help.
- Try to complete a task on their own, waiting longer to ask other people for help.
This study shows how easily people move from thinking socially to thinking financially with the result that they focus mainly on themselves and their own needs. The effects of even these subtle unconscious reminders about money are enough to change people's behaviour quite drastically.
In just the same way, economics students - who presumably spend a lot of time thinking about money - have been shown to act more selfishly than students of other disciplines (Frank et al., 1993). It doesn't take much of a mental leap to conclude that people who work in jobs which continually remind them about money will, on average, be more self-focussed than others.
Social versus financial
So, whether we realise it or not, we simultaneously inhabit two completely different worlds. In the social world we are more likely to help people out just because they ask and because it makes us feel good. In the financial world, however, it's all a matter of contracts, payments and let the 'buyer beware' - in this world you only get what you pay for, and sometimes not even that.
Being aware of when, and if, we're moving between these two worlds can help us negotiate each more easily. Certainly I now realise that when I moved flat I would have been much better off giving my friend a gift, rather than money. Because sometimes money just pushes all the wrong buttons.
» Read more on the psychology of money.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
[Image credit: cayusa]
References
Frank, R. H., Gilovich, T., & Regan, D. T. (1993). Does Studying Economics Inhibit Cooperation? Journal of Economic Perspectives, 7(2), 159-171.
Heyman, J., & Ariely, D. (2004). Effort for payment. A tale of two markets. Psychological Science, 15(11), 787-93.
Vohs, K. D., Mead, N. L., & Goode, M. R. (2006). The Psychological Consequences of Money. Science, 314, 1154-1156.
Labels: Money
Avoid The Relativity Trap - How Thinking Globally Can Save You Money
Rationally everyone knows that, roughly speaking, money has an absolute value. $10 is $10 is $10. Yes, the prices of goods vary, but generally speaking we know $10 will buy us a book just as easily as a CD.
This may be self-evident economic reasoning, but it's actually a poor basis for understanding how we make decisions about money. In reality, we often don't view $10 spent on a book in the same way as the $10 for a CD, because comparing a book with a CD is not an easy job.
Here's one reader's response to my call for questions about money:
"I would love to understand why I find some things expensive and won't buy them, and other things not so expensive and will buy them, when they are the same price/cost. For example, I'll spend $50 going out for dinner with my kids when we don't have to (a treat) but I won't buy a $50 appliance for my kitchen (new toaster). And, I'll spend $250 on an outfit for a special party, but would never spend that on jeans I'd wear twice a week. I imagine that if I understood why I do this, I'd be able to spend my $ more wisely."
This (excellent) question goes right to the heart of why money is such a strange beast and why our decisions about money often appear irrational. The question comes down to this: is it possible to compare treating your kids to dinner with buying a toaster? Or: can you compare buying a dress you'd wear to a party to regular, everyday jeans?
When we're trying to make decisions about money, our brains prefer to work in a relative way.Psychologists have found that these kind of cross-category comparisons are exactly the kind we have a problem with. When we're trying to make decisions about money, our brains prefer to work in a relative way. We will tend to compare the cost (and benefit) of treating the kids to dinner at a cheap restaurant compared with, say, a more pricey restaurant, or, at a stretch, with some other comparable activity, like going to the cinema - but comparing treating the kids with buying a toaster? Too tricky. At best we might be able to compare buying the toaster with a different kitchen appliance, like a kettle.
Usually, of course, the marketplace for goods and services is so crowded that there's no need for us to make a decision without a comparison. It's when either there is no comparison - or we try to make a difficult one, like restaurants and toasters - that we end up doing all we can to avoid the problem.
Unfortunately trying to avoid the problem is what gets us into trouble.
Monetary relativity explained
How we can be tripped up by easy comparisons is neatly demonstrated in a study reported by behavioural economist Professor Dan Ariely in his new book 'Predictably Irrational'. Ariely showed 100 MBA students three different options for subscribing to The Economist - options that actually appeared in a real advert - like this:
- Website-only subscription: $59.00 per year.
- Print-only subscription: $125.00 per year.
- Print & web: $125.00 per year.
There's something strange going on here - why include two options, one for print-only and one for print & web at the same price? You'll see in a minute. First let's look at how many chose each of these options:
- Website-only subscription: 16
- Print-only subscription: 0
- Print & web: 84
Unsurprisingly the students preferred the print & web over the print-only. It's a no-brainer. Most also went for the higher priced option over the cheaper website-only option. But look what happened when Professor Ariely took out the middle print-only subscription. So now they are choosing between website-only and print & web:
- Website-only subscription: 68
- Print & web: 32
What a difference that option makes to the Economist's subscriptions! Suddenly most people are plumping for the cheap option rather than shelling out for the pricey print & web option. What's going on?
One of these things is not like the others
Ariely explains that this shift is down to our preference for avoiding comparing things that are too dissimilar. In this experiment the easy option is comparing print with print & web. It's obvious how much better print & web is than just print. Who would choose print-only for the same price? The website-only option gets ignored because it's difficult to compare it with the other two options.
But, once the print-only option gets removed we're stuck comparing dissimilar items, so then students go for the cheap option as suddenly this seems a safer choice.
The solution? Think globally not locally
So how can we avoid the relatively trap? Ariely argues that one solution is forcing ourselves to make these cross-categorical comparisons. Don't focus on seeing the money you spend in the context of similar purchases, but instead think what the money means to you globally.
Focus on what the money means to you globally.For example, imagine you're about to buy a new flat-screen TV, and you can't decide how much to spend. The key is not to think about the price differences between the different TVs. Chances are you'll end up thinking that if you just spend a little more, you'll get a much better TV.
Instead it's better to think about the particular TV you want in terms of other areas of your life. Think about the total price of that TV in terms of what other things you could buy with that money. Then you'll have a better idea of how much you want to spend.
So, to return to the reader's query, the answer is actually there in the question. Trying to compare restaurant meals with toasters, difficult though it is, will probably help you, and the rest of us, spend money more wisely!
» Read more on the psychology of money.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
[Image credit: cypherone]
Labels: Money
Whistlestop Tour of Research on the Psychology of Money
In recent years psychologists have uncovered all kinds of fascinating and strange new things about the psychology of money. It is a huge and ever-growing topic with new research coming out all the time, so let's take a quick look around and spot some of the major themes and headline findings.
Quick word of warning, though, some of the links below are to press releases, which must be taken with a pinch of salt! No fear, in future posts I'll be looking more closely at some of these studies. Let me know which you find most intriguing...
Money and emotions
I recently covered a study showing that more money doesn't always equal more happiness. That said, it's no fun being poor. That's probably why a medium-sized lottery win might increase many people's happiness over the long-term. Say $100,000; not enough to make us disgustingly rich, but just enough to make us feel pretty good.
People will spend more money when they feel down, but they are often unaware of it. Sounds like a side-effect of how little access we have to our own minds. Money can make you happy, though, the trick is to spend it on others as this seems to make us more happy.
Money and shopping
It turns out most of us aren't that good at shopping. For a start we tend to think one of two identical products is higher quality if it has a higher price. Doh!
And shopping might even have a momentum of it's own. Buying that very first item can open the floodgates, and your wallet. Then, later, once we've had the stuff for a while we really hate to throw it away until we've had our money's worth - even if we're not enjoying using it.
Money and personality
Here's a free psychological pearl of wisdom for you: people are different. That means that your system of money management needs to 'fit' your personality. If you're an extreme optimist, though, there might be no hope for your money management techniques. Apparently these perennial Pollyannas are prone to spending their money unwisely.
The link between intelligence and money is a bit of mystery. People with a high IQ tend to be more patient in financial matters. That might make you think they would be more wealthy, but there's barely any relationship IQ and wealth.
Theories about money
Have you heard of mental accounting? This is the idea that we put money into different imaginary accounts in our head, such as current, savings, investment etc., then make different decisions depending on which imaginary account we're thinking of.
While we're thinking about mental accounting, let's imagine our mental bank accounts don't contain money, but something else. What else is analogous to money? Well, they say money is a drug, and perhaps they're right. Or maybe money is like food (which isn't far from a drug for many people). In fact, perhaps people's age-old desire for food has now been replaced with money?
Apparently, though, one thing money isn't like is time - well not psychologically at least.
Money and the brain
The brain may be remarkably resilient, but any kind of brain damage is often bad news for psychological functioning. Money management skills are no exception. No, definitely no exception.
If your brain is working, though, you'll probably find that its 'reward centres' will 'light up' if you make more money than your colleagues. Now money sounds like a drug again.
Money and sex
The cliche is that men want good looking women and women want rich men. But research suggests men are just as attracted to solid financial prospects in a mate as women are. So having money is probably good for getting a mate, but does it mean you'll get more sex? No, according to this study which fails to find a relationship between wealth and sex, or number of sexual partners.
Money and gambling
It's an oft-repeated 'fact' that losses are psychologically twice as powerful as gains. In which case, why do people gamble? Perhaps the key is in the context. When it's small amounts of money it seems that then it's the gains that loom larger than the losses. Also, the exact circumstances are obviously going to be important.
Money and society
Doesn't foreign money look and feel weird? Yes, it appears we really do treat foreign money like play money, even though it's someone else's real money.
And finally, the saddest study of all. People who are reminded about money prefer to play alone, work alone and put distance between themselves and other people.
» Read more on the psychology of money.
What do you think?
Lots of tantalising ideas here - which ones should we explore? Also, have you got any favourite studies about money that you'd like to share?
» If you enjoyed this post, subscribe to PsyBlog (RSS).
[Image credit: Thomas Hawk]
Labels: Money
Psychology of Money: What Do We Want To Know?
Over the next week or so I hope you'll join me on a journey into the psychology of money. Send me your questions as we explore our sometimes strange, sometimes passionate, always complex relationship with filthy lucre:
- Why some people are so obsessed with it, why others don't care.
- How we decide what to spend it on.
- Why things cost the amount they do.
And many more questions I haven't thought of yet! I'll be looking at psychological studies, theories about money and running some polls to reveal our attitudes.
So please send me any queries about the psychology of money that you'd like answering. Hit me up in the comments section or email me. Any aspect of money you like as long as it has a psychological angle.
I'll be doing my best to answer your questions and I hope you'll be able to enlighten me as well.
[Image credit: AMagill]
Labels: Money
Wealth Psychologists: Money is a Problem
[Photo by EricGjerde]
It's so hard to be rich nowadays that people need special help from 'wealth psychologists'. Apparently one of the problems frequently faced by the rich is guilt. Along with this there's the question of how to raise kids responsibly when almost anything is affordable. Financial management firms are now hiring their own in-house psychologists to help those rolling in piles of filthy lucre.Reading this tale of woe I'm sure many of you are on the verge of tears on behalf of the wealthy. If so you better not read on as it may be too upsetting. According to 'Wealth Legacy Group' some of the problems faced by the wealthy are:
- Fear of being loved for their money rather than themselves.
- Worry about how money will affect their level of intimacy in personal relationships.
- Being nervous when others ask for a loan.
In all seriousness, of course, just having money doesn't mean psychological problems evaporate. What it does mean is the wealthy have the cash to hire the services of psychologists, and so a form of 'boutique' psychologist is born.
Inverting the problems above, though, produces a more serious list of complaints:
- Fear of being hated for being poor.
- Worry about how money will affect levels of intimacy in personal relationships.
- Being nervous about asking for a loan.
Now there's a list that's easier to be sympathetic with.
Self-sufficiency
Either way money is a problem. Psychological research into money has found that when people are reminded about money they act in a more self-sufficient way (Vohs, Mead & Goode, 2006). They are then more likely to perform 'socially insensitive' actions, cutting themselves off from others.
Perhaps this is the greatest problem faced by people thinking about money, whether they are rich or poor: that they separate themselves from others through thinking selfishly. Even the super-rich need friends, or in the psychological terminology 'social support', and without it are likely to become miserable. A continuing focus on money serves only to cut us off from others.
» If you enjoyed this post, subscribe to PsyBlog (RSS).
Reference
Vohs, K. D., Mead, N. L., & Goode, M. R. (2006). The Psychological Consequences of Money. Science, 314(5802), 1154-1156. (Abstract)
Labels: Money