UpdateI’d like to apologize for forgetting to link to the article yesterday.
The New York Times has an article exploring the issue of whether there may be more important things than a country’s economic development. A worthy topic, but sadly the article references what is possibly the worst academic survey every conducted.
[B]eyond a certain threshold of wealth people appear to redefine happiness, studies suggest, focusing on their relative position in society instead of their material status.
Nothing defines this shift better than a 1998 survey of 257 students, faculty and staff members at the Harvard School of Public Health.
In the study, the researchers, Sara J. Solnick and David Hemenway, gave the subjects a choice of earning $50,000 a year in a world where the average salary was $25,000 or $100,000 a year where the average was $200,000.
About 50 percent of the participants, the researchers found, chose the first option, preferring to be half as prosperous but richer than their neighbors.
I think that’s the stupidest thing I’ve ever heard. They seem to think that people choosing the $100,000 option are twice as wealthy in absolute terms than the people choosing $50,000, but that is utter bollocks.
If the average salary of the world increases by 8-fold and yours drops by half, than in absolute terms you have only 1/16 of the wealth that you had before. Money is not some kind of nano-gel with the ability to transform into an amount of physical material in proportion to the number of units you have, it’s an abstraction that represents the portion of the economy’s total wealth that one controls. The value of individual money units is a simple proportion based on the total amount of money units in existence, this is why we have things like inflation-a concept that seems to have escaped the Harvard School of Public Health.
If they had said ‘town’ or ‘community’ than it might make some sense, because your currency value is still based on the larger economy and in fact would represent a large share of the world’s wealth, but if you’re talking about the entire WORLD’S average income than people who chose the second scenario, much like the people who designed this survey, just don’t know the most basic of math skills.
Unless they were really were testing for basic logic skills, and the whole ‘values of wealth’ thing was just obfuscation.
Update:
Saru linked to a paper by the two Harvard professors in question, which contains a survey with various questions making the same test in both monetary and non-monetary terms. It contains one question identical to, and one almost identical to the one listed in the NYT article, except it is phrased exactly the way it should be. The raises the question, was this a mistake by the NYT writer or editor, or did the professors give the reporter a dumbed-down explanation that wasn’t as clear as their actual paper?
I see that Andrew Revkin, who wrote the NYT article, is one of their regular science writers, but even science journalists aren’t supposed to be experts, and aren’t even expected to fully understand the science themselves. He should have had the professors check his article before publication, and they should have caught that mistake.
First survey:
In the questions below, there are two states of the world (State A and State B). You are asked to pick which of the two you would prefer to live in. The questions are independent. For each question, circle either A or B, or if undecided, both A and B. “Others” is the average other person in society.
[…]
Note that prices are what they are currently and prices (the purchasing power of money) are the same in States A and B.
A: Your current yearly income is $50,000; others earn $25,000.
B: Your current yearly income is $100,000; others earn $200,000.Second survey:
Note that prices are what they are currently and prices (the purchasing power of money) are the same in States A and B.A: Your current yearly income is $200,000; others earn $100,000.
B: Your current yearly income is $400,000; others earn 800,000.
Indeed. There’s an obvious difference between a difference in the monetary units, and in a difference in the actual wealth.
In fairness, the average income could increase by 8-fold because real wealth is increasing (thanks to technology as much as anything)– but the survey doesn’t seem to be explicitly saying that.
Just for the sake of argument, you may not giving these public health people enough credit. They keenly surmised that the average Joe wouldn’t understand such niceties as the concept of money, so they made the right decision to phrase their question in such a way that it gave a clear choice “would you rather be richer than your neighbors or have more money but still be poorer than the Joneses?”
Still, that whole article makes me lose faith in humanity… first, the Harvard people make a retarded survey (possibly government-funded), and then get people to take it seriously enough not only to respond but also to get it cited in the most prestigious newspaper in the country. There is no God~!
My guess is that they were using the economist’s greatest weapon… simplifying assumptions – ceteris paribus in this case. This is the ultimate answer to all the, “yes but…” questions of an argument.
So, holding everything else equal, forgetting about inflation, forgetting about exchange rates, tax rates, and anything else that might erode purchasing power, at this very moment, instead of your current salary, would you rather be making $50,000 when the average salary is $25,000, or $100,000 when the average was $200,000.
Personally, I’m all about the $100,000. Anyone who says differently either doesn’t remember what it’s like, or never had to try and get by in a big city on a job that pays $20,000 a year (for the record, that was the salary at my first job, not the current one). I wouldn’t even know how to spend $100,000! I could pay off the entire balance of my student loans in one year and still live better than I’m living on my current salary!
Incidentally, these same two researchers seem to have published a number of works on so-called “positional goods.” I just had a brief look over one of them and I must say that the question makes much more sense when worded in non-monetary terms because then the questions of percentage of total wealth or price factors dissapear.
For example, respondents were asked to choose one of the following options:
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.
This was done for a series of questions to test four hypotheses:
(1) Income is more positional than leisure
(2) Goods are more positional than bads
(3) Private goods are more positional than public goods
(4) Consumption goods such as clothing and housing are more positional than health and safety
The results are pretty interesting and are put into chart form near the end of the paper.
I won’t go into anymore detail here, but if you’re interested, check out the paper (18 pages) here:
http://www.aeaweb.org/annual_mtg_papers/2005/0108_1015_0603.pdf
The update seems quite plausible to me. Science news is almost always badly reported, so I wouldn’t be surprised at all to learn that the question was phrased correctly, and the article poorly written.
I recall a similar poll conducted in the US at the height of Japan’s bubble period. The question asked whether a growth rate of 3% or 5% for the US economy was better. Respondents almost unanimously plumped for 5%. Then two scenarios were offered (my numbers are likely wrong but you get the idea) – US growth of 3% against Japanese growth of 1% or US growth of 5% against Japanese growth of 7%. The first scenario was preferred by a healthy margin.
I wonder whether substituting China in a similar survey today would show that result or perhaps the fear being overtaken by China is not strong enough yet.