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December 27, 2008
∞Indeed, humans are remarkably attuned to relative position and status. As the economists David Hemenway and Sara Solnick demonstrated in a study at Harvard, many people would prefer to receive an annual salary of $50,000 when others are making $25,000 than to earn $100,000 a year when others are making $200,000.
I’ve seen the story of this study brought forward many times in the last few months in the context of our current economic climate. I feel like the outcome of this study is very intuitive (almost obvious), and the subjects in the study reacting differently would be the real surprise to me.
Prices for goods and services are directly correlated to consumers willingness to pay. If you are making 50% the salary of your peers, then you have 50% less purchasing power than your peers and prices will be pushed relatively higher; and vice versa applies when you make 2X the amount of your peers. It makes sense to me that people are more concerned about their relative salary rather than their gross salary because their relative salary will ultimately determine the share of total goods and services that they can acquire.
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giantrobotlasers
reblogged this from
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But it doesn’t make any sense. Forget for a moment that your peers...raise relative...
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thegongshow
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