Like shifting sands

(featured image credit: Weekend wayfarers CC BY)

Our preferences are neither fixed, nor absolute – and that is a good thing, in times of crisis

Some people prefer fried tomatoes to steamed broccoli, while for others it is the opposite. (I cannot imagine there are many such people, but as my grandson is living proof, I must concede there is clear evidence). Some like to go to the opera, others to football matches – at least when coronavirus measures are not in force. Some like fast cars with a prestigious badge; others consider their vehicle as a mere an instrument for transporting people and stuff from A to B. You get the picture: we all have different preferences.

Preferences are an important aspect of decision-making, and of great interest to (behavioural) economists. It is helpful to know what people want (or want to avoid), and how badly they want this. One way of measuring the strength of such preferences is to establish how much someone is willing to pay (WTP) to acquire (or avoid) something, and how much they are willing to accept (WTA) to give something up (or to be willing to live with it). This is often enlightening, but we must not forget that the amounts in question are no more than a proxy for an internal preference. Some preferences do not easily let themselves be captured in WTP or WTA. If you were asked what would be worst, losing a finger, or losing a leg, you might say that you’d rather lose a finger, even though you would probably not be able to express in money what it would be worth to you to avoid either of them being removed.

The same, but different

Not all preferences can be expressed through sums of money, but that does not make them any less real. Imagine your most favourite artist ever will give a concert in a nearby city and a friend manages to get tickets, inviting you along as a birthday treat. You are elated at the prospect, and get more excited as the day of the gig approaches. Then, three days before the performance, you fall seriously ill, and you are unable to attend the concert. That would really suck. Picture a Scale of Awfulness, with 0 being meh and 10 being a fate worse than death, and put a pretend marker on it, corresponding to how bad you would feel.

cancelled

Still better than a broken femur (photo: bixentro CC BY)

Right. Now imagine a different scenario: instead of you getting sick, it is the artist who is ill and needs to cancel the concert. Again, pretty bad. But would you rate it as extreme on the Awfulness scale as being alone in missing out? Probably not. Let’s do one more, a really hypothetical one, this time. Imagine there is a pandemic of a new virus, and in order to stem its spread, many countries have banned sports meetings, theatre performances and music festivals, and closed shops, bars and restaurants. You will miss out on the concert you had been so looking forward to. Where would your pretend marker be on the Awfulness scale, expressing how bad you feel about this?

My guess is that this would feel bad as well, but not quite as bad as the two other scenarios. It chimes with my experience too. Last October, I registered for a very interesting conference in Toronto this coming July, and was looking forward to meeting up in person with many distant friends, people that I have known, in some cases for many years, but only through digital interactions. COVID-19 now means it is not very likely this will happen.

As the virus crisis unfolded, at first, I was hopeful that the whole thing would blow over well before the summer, but I am a lot less certain now. Yet strangely, the knowledge that we are all in the same boat – not just the other attendees to that particular conference, but everyone on the planet is seeing plans of all kinds obliterated – makes me come to terms with it much more easily. If I had to put markers on the Awfulness scale, missing this opportunity because of the pandemic would score something like 3.5, while being stuck at home as a result of a fractured femur, while almost literally everyone else is enjoying their trip would suck big time, and score perhaps an 8.5.

This is remarkable, since the material effect for me is exactly the same. Situation one: I attend the conference and see my friends; situation two: I don’t. What other people do or don’t do is not material – or should not be material – to me. And yet, it clearly is.

Two sides to the position

Our wellbeing is definitely influenced by our perception of others. We care about our relative position. A study by two economists, Sara Solnick and David Hemenway, asked people about their preferences relating to a range of facets including their income, their own IQ and that of their children, and feedback at work. For example, one set of questions asked what they preferred: that their child has an IQ of 110 while that of their friends’ children is 90, or that their child has an IQ of 130 while other children have an IQ of 150. They called the first choice the ‘positional’ one (it places a respondent at a higher position in comparison with others), and the second one the ‘absolute’ one (it provides more absolute benefit to the respondent).

More than half the respondents would prefer a child with an IQ of 110, if she is more intelligent than other kids, to a child with an IQ of 130 if her peers were smarter still. Likewise, more than 50% said they’d prefer infrequent praise from their boss as long as they got more than their colleagues, and even that they’d rather earn $50,000 if their peers earned $25,000, than earn $100,000 if their peers took home $200,000.

evilqueen

Fair, fairer, fairest of them all … (source fair use)

This suggests that we tend to care rather a lot about our relative position compared to our peers. Arguably, this has detrimental welfare consequences. Recall the fairy tale of Snow White. The queen is perfectly happy with her beauty, until she hears from the mirror that she is not the prettiest in the land. In the real world, it can breed resentment, trouble personal relationships, and lead to the kind of positional arms race that economist Robert Frank has been writing about for many years. We’re not happy until we have kept up with the Joneses, but as soon as we get there, they jump ahead again (I wrote about it here).

On the one hand, this preoccupation with relative positions seems to be a destructive force in society. But, as it behoves even an accidental (behavioural) economist, I can see the other hand too. In times of crisis, whether it is a flooded village, wildfires, or indeed a pandemic, the same tendency that makes us envious if others have more than we do, can forge a strong sense of togetherness. The people who were unfortunate enough to be on the Diamond Princess, the cruise ship that gained global notoriety because it was one of the first locations outside China where people infected with the coronavirus were identified, were, literally, in the same boat.

And so are we all. That sense of togetherness makes our preferences shift like sand dunes in the wind, when we compare our own fate with that of others. In situations like this, that is probably a good thing.

Stay safe. Stay healthy. Look after yourself and after each other.

 

About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Economics, Emotions, Psychology, Society and tagged . Bookmark the permalink.

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