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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 find it more surprising that everyone didn't choose the first option. Even though $100,000 is more than $50,000, in terms of purchasing power it's all about relativity. The more other people earn given the same productivity, the higher prices will be overall and the less purchasing power you'll have.

For example, if you gave everyone $10m and I only got $2m.. I'd still be a "millionaire" but inflation would go through the roof and I'd still end up with rather little compared to everyone else.




I think it's assumed that these are "real" dollar values (ie in the latter case the overall economy would be larger). The point of the study is that people care more about relative status than absolute wealth.


I must be missing something. Do people regularly turn down jobs paying double their current salary ... because others in the new department are getting more? I understand the cost of living in the new city might be higher, or that they prefer shopping around for a better deal, but that's not what the study's saying.


I know of one example where someone turned down extra money out of jealousy, albeit under slightly different circumstances.

A friend of mine was meeting a guy for a potential arranged marriage. She had a good job working for a large investment bank. A deal killer for the potential husband: the wife can't make more money than him. This was VERY important to him, literally the second or third question he asked her.

(Him being a jackass was a deal killer for her.)


In many cases it's relative value that's more important. Take housing, if you make twice the average person in your area housing is not a problem if you make 1/2 it's a major issue.

It works the same way for education and other services. The only advantage to an increased economy when you fall behind is hard goods which are not that important. I don't care if I can buy a 70" TV if I can't pay for housing. etc.


People do regularly choose not to immigrate to a richer country because of similar reasons.


If they were real dollar values and everyone else were earning double what you were, you might be able to maintain a good lifestyle by current standards, but by the standards of this significantly larger more advanced economy you'd still be relatively "poor" while earning twice today's income. I think the study shows people are inherently aware of this (or at least wired to act in such a way).


The last time I heard about a study like that (maybe the same one), they explicitly stated that $1 had the same purchasing power in both circumstances.


That's a paradox. At that point surely the survey becomes garbage in, garbage out.


It's hardly a paradox. It describes the following two situations:

a) I live a postdoc lifestyle, everyone else lives a grad student lifestyle.

b) I live a full professor lifestyle, everyone else lives an investment banker lifestyle.

World b just has more goods in it than world a. That's not a paradox; Earth 2008 has far more goods in it than Earth 1908.


Rich people throughout the world, and throughout history, have had good housing, leisure time, and a sense of security. They've had the opportunity to socialize with other successful people, a group which includes politicians, entertainers, etc. Poor people have lacked these things even in extremely affluent societies like USA 2008.

The question is just too hard to interpret. "Standard of living" is very complicated and can't really be reduced to "purchasing power", nor to "purchasing power plus envy". There are a lot of things which money can't buy, or which money can buy but which are scarce no matter how affluent the society is.


Poor people in the USA (at least by the official definition of poverty) do not lack good housing or leisure time. In fact, the poor have more leisure time than the rich.

http://www.heritage.org/Research/welfare/bg2064.cfm

I won't comment on their feelings ("a sense of security"), or their ability to socialize with Angelina Jolie.

In any case, by "lifestyle" I simply meant "material standard of living". I.e., $25,000, $50,000, or $100,000 worth of consumer goods and services as measured in 2008 dollars.




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