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Why People Have Irrational Beliefs About Money

Ask yourself this question:

Would you rather earn $50,000 a year while other people make $25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same.

It turns out, the majority of people would choose the first option, even though that meant earning half of what they could otherwise have!

In this interesting article at Los Angeles Times, Michael Shermer explores why people make irrational decisions when it comes to money (hint: blame evolution). Apparently, monkeys also behave in the same ways:

Human as it sounds, loss aversion appears to be a trait we've inherited genetically because it is found in other primates, such as capuchin monkeys. In a 2006 experiment, these small primates were given 12 tokens that they were allowed to trade with the experimenters for either apple slices or grapes. In a preliminary trial, the monkeys were given the opportunity to trade tokens with one experimenter for a grape and with another experimenter for apple slices. One capuchin monkey in the experiment, for example, traded seven tokens for grapes and five tokens for apple slices. A baseline like this was established for each monkey so that the scientists knew each monkey's preferences.

The experimenters then changed the conditions. In a second trial, the monkeys were given additional tokens to trade for food, only to discover that the price of one of the food items had doubled. According to the law of supply and demand, the monkeys should now purchase more of the relatively cheap food and less of the relatively expensive food, and that is precisely what they did. So far, so rational. But in another trial in which the experimental conditions were manipulated in such a way that the monkeys had a choice of a 50% chance of a bonus or a 50% chance of a loss, the monkeys were twice as averse to the loss as they were motivated by the gain.

Remarkable! Monkeys show the same sensitivity to changes in supply and demand and prices as people do, as well as displaying one of the most powerful effects in all of human behavior: loss aversion. It is extremely unlikely that this common trait would have evolved independently and in parallel between multiple primate species at different times and different places around the world. Instead, there is an early evolutionary origin for such preferences and biases, and these traits evolved in a common ancestor to monkeys, apes and humans and was then passed down through the generations.

Link

Not me, if prices and goods were same, etc., then for sure I'd go for the 100,000. My concern is not what others are making, nor comparing myself to others, but what I can make for myself. There will always be people making more and less than me, so they are not my concern.
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As Geekazoid said, it's about comparing yourself to others, which is why most people would go for the first option (to make themselves look better against others). But If prices were staying the same I'd go for 100,000.
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I too would choose the first option thinking that prices surly would be different when most people would earn less than me. As stated befire: When prices stayed the same i would choose option number two.
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This is an excellent example.

@Economist -- The example clearly states to ASSUME THAT PRICES REMAIN THE SAME. Yes, this is an simplification, but it is reasonable especially when we are considering what is happening with our neighbors, coworkers, &c. One could also have given the example in "real" dollars (inflation adjusted), rather than "nominal" dollars, but that makes it harder for non-economists to grasp. Just get past that, OK and consider what the example is really talking about.

The results observed is purely one of socialist conditioning. People are (regrettably) trained to be very concerned about the irrelevent "growing gap between rich and poor" when in reality, everyone's standard of living is (usually) increasing. This is all that matters. If your family could never have afforded a Yugo 20 years earlier and now you drive a pretty decent Chevy, you shouldn't really be worried that the guy across town has a Mercedes. So what

People should be concerned when standards of living drop, not when so-called "gaps" widen. The poor in the Western world are gobs better off than the middle class were in their grandparents' era.
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The assumption that prices would stay the same makes it a trick question. And trick questions never give useful scientific data. Because we're hard wired to live in the real world, and in the real world, if you make less than *everyone else*, you don't live as well. Prices *won't* stay the same.
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You have to wonder, who are they using to represent this research? I immediately thought it was a nonsensical question. But then I've also seen the people who ask the random statistical questions like these. They're always catching people who have other things on their minds. Is this really representative?

Aren't statistics sort of like this question? A comparison but of what? Those numbers always change and it's crazy to think people make solid decisions based on surveys and controlled groups that "represent the masses".
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lets see make twice as much as everybody else, or half as much as everybody else. can i think about this for a moment? the majority of people chose to make half as much.who are these people?
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All of this is very complex, perhaps if people would send me some money it would help clear up some of these confusing topics.

//sorry, thought this was the thread about scammers.
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Depends. What would I be doing for the money?

The other problem with money is thinking only in terms of money, and not valuing your time....
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Ah, classic Interweb phenomenon: oversimplify a complex question and overthink a simple one. Then go on a tangent.

If we wait long enough, Jesus and his godisimaginary link spam (deleted now) will show up....
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I think that if people were really honest with themselves, they would choose to make more than their neighbors.
It sounds bad, so it is easy to debate. But secretly, don't you just want to be a little bit better than the guy across the street?
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