## May 17, 2009

It seems clear what the pattern is: there is a positive correlation between how public and positional an item is. I don't think subsidizing the private items and taxing public ones will change the weights people spend on private versus public items. People would still want to spend the same proportion of their income on public goods. What would more likely to occur is a change in spending on public consumption bundles rather than a shift to private ones.

Can you please explain the two tables? What does it mean to say "Outfits to wear at interviews are 62% positional, 33% non-positional, and 5% neither"?

"Each question on our survey presents two states of the world. [...] In one state of the world, the "positional" state, the respondent (or the respondent's community or country) has more than others. In the other, "absolute" state, both parties have more than in the positional state but the respondent now has less than others. [...] Respondents were asked to select the world in which he or she would prefer to live."

One example: "A. Your home has seven rooms; other people's homes have ten rooms. B. Your home has five rooms; other people's homes have three rooms."

The percentages indicate how many respondents preferred each world.

For the benefit of those who are curious about exactly what the income questions were (it's not clear from the table), they're these:

Note that prices are what they are currently and prices (the purchasing power of money) are the same in States A and B. Choose either A or B:
A: Your current yearly income is \$50,000; others earn \$25,000. (33% selected this answer.)
B: Your current yearly income is \$100,000; others earn \$200,000. (67% selected this answer.)

And:
A: Your current yearly income is \$200,000; others earn \$100,000. (48% selected this answer.)
B: Your current yearly income is \$400,000; others earn \$800,000. (51% selected this answer.)

I'm a bit horrified that so many people would pay so much to reduce the income of others.

Michael - don't forget that many people look at money as a relative measure in the first place. If everyone on the planet was getting 25,000 and you were getting 50,000, you'd be far better off (in an absolute sense) than if you were getting 100,000 and everyone else on the planet was getting 200,000.

You might be getting a slightly smaller slice of a much bigger numerical pie, but the amount of product that's available is fixed, so the absolute dollar numbers divide out, so the actual real pie is the same size.

I interpret the question to be talking about a wealthier world (in real wealth, not just currency). The question says the money has the same purchasing power, so must be more real wealth in the world of State B. Or am I reading too much into it? But I don't know how else the question could make sense.

Hopefully the ones who selected State A were interpreting it differently. But if people understood that the total amount of currency in a world with fixed wealth doesn't matter, only the distribution of currency matters, then we should expect the proportions selecting State A and State B to be the same in both questions.

I'm wondering if people spent less on certain positional goods, might they just spend more on others? Increasing taxes can reduce consumption of purchased goods, but not all goods are purchased. People may take more time to wax a car, do home renovations or lift weights if they could not buy their way into better positions. Status-seeking is such an integral part of (a currently very successful) human society, I am extremely skeptical we understand what would happen if we tried to significantly reduce it.

If I feel I need to invest an undue amount in positional goods to maintain a decent position amongst certain people, I usually just stop associating with those people. Its cheaper and easier than buying a bigger house.

Robin, did you find anything on how positional private health care spending is (I'm betting its less positional than you often suggest)?

The different response percentages between the two money questions is interesting. The obvious hypothesis this suggests to me is that the value people give to money drops off above some maximum (presumeably, however much they feel they need to buy the tangible wealth to live comfortably), after which they value money primarily as an indicator of social status which requires having more than other people do.

I recall seeing research showing that the correlation of wealth and happiness is very strong at lower incomes, but weakens above some income level, which seems potentially related, but I don't remember the source.

Very interesting. I take the results seriously, but it's also important to test what people say against what they do. Besides looking at immigration data, can you guys think of ways to test some of these things?

The comments to this entry are closed.

## May 2009

Sun Mon Tue Wed Thu Fri Sat
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31