Category: Money

Emotion, guest blogger, Money September 4, 2018October 1, 2018

The “experiential advantage” is not universal – the less well-off get equal or more happiness from buying things

Being rich(er) may not guarantee happiness, as shown by ample evidence from the social sciences, but there are ways of spending money that will make you happier than others. Recent research has uncovered the “experiential advantage”: greater happiness from spending money on experiences (holidays, meals, theatre tickets) instead of material things (gadgets, clothes, jewellery). This could be for a number of reasons, such as experiences being more closely aligned with our values and being less likely to produce rumination and regret. There are exceptions to this rule, of course. Studies have found that personality traits can influence whether experiences or things make a person happiest; for example, introverts are made much happier by spending vouchers in a bookshop than a bar.

Another likely exception, that hasn’t previously been studied, is how social class, and specifically access to resources, affects this experiential advantage. Indeed, most research in this area has been performed with college students, who are typically more affluent than the general population, and there are reasons to believe that those who are less well-off might prefer material goods. For them, buying things as opposed to experiences could be more practical: they last longer, can be used multiple times and potentially resold in the future. To put this reasoning to the test, a recent paper in Psychological Science investigated whether the experiential advantage is diminished or absent for people who can afford very little compared with those who can afford a lot.

Continue reading “The “experiential advantage” is not universal – the less well-off get equal or more happiness from buying things” →

Money, Occupational, Personality November 7, 2017

Contrary to stereotypes, study of hedge fund managers finds psychopaths make poor investors

By Emma Young

If you’re a psychopath who’s good with numbers, you could make the perfect hedge fund manager. Your lack of empathy will allow you to capitalise blithely on the financial losses of others, while your ability to stomach high-risk, but potentially high-return, options will send your fund value soaring…. Well, that’s the story that’s been painted by popular media, folk wisdom and Wall Street insiders alike. The problem, according to a new paper in Personality and Social Psychology Bulletin, is that hedge fund managers with psychopathic tendencies actually make less money for their clients.

Continue reading “Contrary to stereotypes, study of hedge fund managers finds psychopaths make poor investors” →

Cognition, Decision making, Money, Political August 4, 2017September 27, 2018

We have an ingrained anti-profit bias that blinds us to the social benefits of free markets

By Christian Jarrett

“Harnessing the ‘base’ motive of material self-interest to promote the common good is perhaps the most important social invention mankind has yet achieved,” said the American economist Charles Schultz. And you can see why. While acknowledging its problems, many credit free market capitalism for the dramatic reduction over recent decades in the proportion of people in the world living in extreme poverty, not to mention rising health standards and technological advances. Conversely, according to some commentators, one only has to look to modern-day Venezuela to see the dangers of extreme anti-profit socialism.

And yet, according to a new paper in Journal of Personality and Social Psychology, most of us have an instinctual anti-profit bias. We view for-profit companies and industries – upon which capitalism is based – with inherent distrust, assuming that the more profitable they are, the more harm they do to society. In fact, research shows the opposite is true: companies that make greater profits actually tend to contribute more value to society, for example in terms of their environmental responsibility and corporate philanthropy.

The authors of the new paper, led by Amit Bhattacharjee at Erasmus University, believe this anti-profit bias leads many voters and politicians to endorse anti-profit policies that are likely to lead to the very opposite outcomes for society that they want to achieve. “Erroneous anti-profit beliefs may lead to systematically worse economic policies for society, even as they help people satisfy their social and expressive needs on an individual level” they said.

Continue reading “We have an ingrained anti-profit bias that blinds us to the social benefits of free markets” →

Money, Personality December 31, 2016January 3, 2017

Find a sense of purpose and you’re more likely to get rich

By Christian Jarrett

As the dawn breaks on a new year, now might be a good time to think about what you want to get out of life over the longer-term. We already know from past research that having a greater “sense of purpose” is good for us psychologically: it’s linked with experiencing more positive emotions and generally feeling better about life. Now a study in the Journal of Research in Personality suggests there are material benefits too. Researchers followed the same sample of people over a period of about nine years, and they found that during that time, those individuals who reported a greater sense of purpose at the study start had accumulated greater wealth. Continue reading “Find a sense of purpose and you’re more likely to get rich” →

Cognition, Money June 28, 2016July 30, 2016

Money worries can enhance performance on some kinds of mental test

Poverty erects material barriers, but psychological ones too, from the conditions that exacerbate mental health problems, to inculcating children with the sense that they are second-rate. A stream of recent research has suggested that financial concerns can also tax your mind and prevent you from thinking clearly. But that may be too sweeping a conclusion, according to Junhua Dang of Lund University and his colleagues in Sweden and China. Their study, published in the Scandinavian Journal of Psychology, suggests having money problems on the mind doesn’t always impair cognitive ability. In fact, it can even enhance it.

The prior studies had shown worse performance on intelligence tests by poorer participants when they were asked to think about financial issues beforehand, because of how these issues loaded their “working memory” – their ability to hold and process information over short time periods – thus hindering the mental manipulations the tests required. But working memory isn’t key to all cognitive work, so Dang’s team set out to see if other kinds of mental tasks would be unaffected by monetary angst.

The participants performed a categorisation task, some of them after being prompted to think about their financial woes. They then viewed a series of basic but rich images – a shape that could be square or circle, yellow or blue, and contained one or two symbols coloured red or green – and attempted to sort each one into the correct category A or B. There was a learning element to the task provided by feedback after each image, telling them whether they’d made the correct categorisation or not.

Category membership didn’t rely on a formal rule, e.g. “Category A contains all yellow squares”;
instead, it depended on a looser accumulation of properties: the most A-like shape might be yellow and square with a single red symbol, but you could swap out any one or even two of those qualities, and it would still count as an A.

This kind of challenge is known as a “procedural cognition” task because success depends more on automatic processes rather than consciously thinking it through. In fact, judgments based on similarity and gut feeling are usually a better tactic than trying to test out and juggle different explicit rules. Crucially, the gut feeling approach doesn’t require spare working memory capacity and can even be facilitated by a lack of it. Therefore financial woes might be expected to enhance rather than hinder the performance of poor people on the categorisation task.

That’s what Dang’s team found in their sample of 97 student participants. Those who were reminded of their money worries, and those with below-average family income (relative to the other participants), performed better on the task, being quicker to meet the success criteria of eight correct categorisations in a row.

The authors argue this matters because highly conceptual activities, such as those measured by intelligence tests and which require lots of deliberate mental calculation, may not be a fair reflection of the kinds of mental work that lower-income people often engage in or depend on in their jobs. For example, a trucker is likely to rely much more on the relatively automatic and instinctive processes that make up safe, effective driving. This is not to make a facile argument such as “financial stress is good for the poor”, but rather to make the point that even if such stress does impede some parts of poorer people’s lives, in other capacities they will be able to operate strongly in spite of, or even in small part due to, this stress.

This relates to a wider point that Dang makes in a commentary on the previous research, which is that although stress is unwelcome, it does have a function, which is to narrow our focus “away from irrelevant tasks (which IQ tests arguably are) toward relevant tasks (which financial decision making arguably is).” This research, therefore, is part of a wider body suggesting that the consequences of poverty are not unrelentingly negative, but varied and multifaceted.

—When the poor excel: Poverty facilitates procedural learning

—further reading—
Poverty shapes how children think about themselves
The adaptive mind: Children raised in difficult circumstances show enhanced mental flexibility in adulthood
Why is poverty associated with mental health problems for some people, but not others?

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Post written by Alex Fradera (@alexfradera) for the BPS Research Digest.

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Money, Occupational, Social June 16, 2016July 30, 2016

The psychology of why we tip some occupations but not others

It’s more about altruism than trying to win approval

Why do I tip my taxi driver, but not my accountant? I mean, there’s a good reason I don’t – he would narrow his eyes at me and ask if I was feeling ok. But why, in general, do we tip in some service contexts and not others; is it simply due to a quirk of history or the result of broader psychological patterns? Cornell University’s Michael Lynn suspected the latter, and in his new study published in the Journal of Economic Psychology, he outlines the evidence for various pro-tipping motives.

Lynn presented a list of 122 American service occupations – including architect, bus tour guide, shampooer – to just under 1200 participants recruited online. Their task was to rate each role on one of 13 different measures including the typical working conditions for the job, how difficult they thought the job was, how well-paid, or the crucial question of how likely they would be to tip someone doing this job for them.

Lynn had chosen these measures carefully, to test out different hypotheses about tipping and reward. For example, participants said they were more likely to give tips to the same service occupations that were perceived to be low-income, consistent with motives related to altruism and egalitarianism; after all, a bit of extra cash in my accountant’s pocket isn’t likely to lift them from want, nor to redress the scales of society.

It might also be that we tip in contexts where we might gain or lose approval from others – a social status motive. Here the results were less compelling: participants were not more willing to tip in roles where the act can be witnessed by others, which you would expect if tipping was about making yourself look good. However, tipping was more common when participants thought people in the role were usually much less happy than their customers, like the taxi drivers who take revellers to and from parties, or holidayers to airports. Lynn treats this as evidence for wanting to avoid disapproval but I wonder if the finding could be another instance of egalitarianism, using money to compensate for poorer working conditions.

Finally, participants liked to tip in situations where they felt they were in a better position than a manager to evaluate the work of an employee. It’s hard for me to know whether an X-ray technician has done a good job, but I probably have a better sense of the quality of my tour guide’s work today than his manager back at the office. This factor appears quite important, as it explains why jobs (like massage) that require more physical contact, and those that are highly customised, seem more tip-worthy.

Some of the predicted motives didn’t pan out, notably one that any classical economist might expect: that tips are used as an incentive for improved future service. If this was the case, Lynn predicted, we’d prefer to tip roles that involve repeat service, and also those involving extended contact with the customer, giving the service provider more opportunities to maximise their performance for the hope of reward. But participants preferred to tip those kind of roles less, not more. Possibly this is confounded by an unmeasured variable – maybe more contact humanises the service provider, and so the encounter becomes more personal and less transactional – but in any case, it’s a surprising result.

Sophisticated businesses may want to go against the tipping status quo: introducing tips to make the job more attractive to prospective employees and to motivate those in the job, or conversely to remove them, to standardise service and avoid tax complications. But this new research suggests such counter-normative policies may meet with resistance from customers. For example, Uber decided to discourage tipping by not allowing it through the app system. The work of these ride providers is easily evaluated and customisable, low income, and likely less fun than the experience of those enjoying the ride. The response from customers? Petitioning Uber to let them tip.

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Lynn, M. (2016). Why are we more likely to tip some service occupations than others? Theory, evidence, and implications Journal of Economic Psychology, 54, 134-150 DOI: 10.1016/j.joep.2016.04.001

—further reading—
Why we tip and how to get a bigger tip
Tipping is more prevalent in countries that are more corrupt

Post written by Alex Fradera (@alexfradera) for the BPS Research Digest.

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Developmental, Educational, In Brief, Money April 18, 2016July 30, 2016

Compared with earlier generations, uni students today are more motivated by money and less by learning – US study

Between 1971 and 2014, the American Freshman Project has asked first-year students, most of them aged 18, about their reasons for going to university. Now for a paper in The Journal of Social Psychology, the psychologists Jean Twenge and Kristin Donnelly have analysed the answers of 8 million students across this period.

Among the reasons tested in the survey were: “To be able to get a better job”; “To be able to make more money”; “To learn more about things that interest me”; and “To prepare myself for graduate or professional school.”

To tie the students’ answers to these questions to a validated psychological measure of motives, Twenge and Donnely asked 189 undergrads at San Diego State University to answer the same questions used in the Freshman Project and also had them complete an established research questionnaire about their aspirational motives – the Aspiration Index. This was to find out which answers on the Freshman survey tended to correlate with intrinsic (e.g. self-acceptance) and extrinsic (e.g. money-based) motives on the validated psychology questionnaire.

The researchers divided up the 8 million students who took the Freshman Project survey into three generations: Boomers (born 1944–1960), Generation X (1961–1979) and Millenials (1980–1994). The biggest change between Boomers and Millenials was that Millenials were more likely to say that they were attending university to make more money – an answer that, not surprisingly, correlates with extrinsic motives on the Aspiration Index. Another big change was that Millenials agreed less strongly that they were motivated to “learn about things that interest me” – an answer that reverse correlates with extrinsic motives.

The researchers said their findings provide support for anecdotal observations that today’s students have a more “consumer mentality” than prior generations. Note, however, that the trends towards more interest in extrinsic motives began among Generation X in the 1990s; Millenials have simply continued that trajectory. Note too, that students continue to be more motivated overall by intrinsic factors than extrinsic ones, it’s just that today they are more motivated by money and less by learning than in the past.

The study can’t speak to why students’ motives have changed, though the researchers note that income inequality and rising attendance at university have increased alongside stronger extrinsic motives. They also warn that students’ increased tendency to see education as “a transactional procedure or a means to an end” could be harmful, undermining their ability to retain what they learn and increasing the temptation to cheat and plagiarise.

—Generational differences in American students’ reasons for going to college, 1971–2014: The rise of extrinsic motives
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Post written by Christian Jarrett (@psych_writer) for the BPS Research Digest.

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Emotion, Money, Time February 4, 2016December 13, 2017

People who prioritise time over money are happier

A lot of has been written about how focusing too much on materialistic ambitions, at the expense of relationships and experiences, can leave us miserable and unfulfilled. In a new paper published in Social Psychological and Personality Science, a team of psychologists at the University of British Columbia in Canada argue that there’s another important distinction to be made – between how much we prioritise time versus money. Those who favour time tend to be happier, possibly because this frees them to enjoy pleasurable and meaningful activities, although this has yet to be established.

The researchers led by Ashley Whillans first devised a quick and simple way to measure this difference in people. They asked just over 100 students to say whether they prioritised having more time or having more money, and to help them appreciate the distinction the researchers presented them with vignettes of two people – one who prioritises time:

Tina (male names were used for male participants) values her time more than her money. She is willing to sacrifice her money to have more time. For example, Tina would rather work fewer hours and make less money, than work more hours and make more money.

And one who prioritises money:

Maggie values her money more than her time. She is willing to sacrifice her time to have more money. For example, Maggie would rather work more hours and make more money, than work fewer hours and have more time.

The students answered this question twice, three months apart and their two choices were highly consistent, which supports the idea that people’s prioritisation of time versus money is a stable trait.

In several further studies involving thousands more students and adult members of the general public in Canada and the US, Whillans and her colleagues showed that people’s answer to this one simple question correlated with their choices over various fictional scenarios, such as: whether they wanted to apply for a hypothetical higher salary/longer hours job or a lower salary/shorter hours alternative; whether they’d prefer a more expensive apartment with a shorter commute, or a cheaper alternative (to save money) and make a longer commute; and whether they actually chose a smaller cash reward for taking part in the study, versus a larger value reward token toward a time-saving service (such as a cleaner).

What’s more, across the studies, people who said they prioritised time tended to report being happier. This was true based on various ways of measuring happiness and wellbeing, and the association held even after holding constant many other factors, such as people’s salary, education, hours of work and age and gender. The researchers also measured people’s materialism and the association between happiness and favouring time over money remained after taking this into account.

The researchers said that this relationship between prioritising time and being happier was “small but robust” – about half the size of the impact on happiness of things like being married and having more wealth. In an example of exemplary scholarship, the researchers make clear every factor they measured, every participant who was excluded and why, and the recruitment stopping rule for each study (i.e. how it was decided when to stop recruiting more participants). And perhaps most important, all their data is freely accessible via the Open Science initiative.

As so often, it’s worth remembering that this data was only recorded at a single point in the lives of the participants, so it’s not yet been established that having more a time-centric orientation versus money-centric actually causes greater happiness – as the researchers acknowledge, it’s possible that being happier allows people to see the value in saving time to do fun things. As well as longitudinal research (that follows people’s priorities and happiness over time), future studies could also establish how people’s time vs. money priorities change in response to important life events such as having children or retirement (the current data suggest that older people tend to favour time), and whether it’s possible to deliberately change one’s orientation.

“Although causality cannot be inferred,” the researchers concluded, “these data point to the possibility that valuing time over money is a stable preference that may provide one path to greater happiness.”

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Whillans, A., Weidman, A., & Dunn, E. (2016). Valuing Time Over Money Is Associated With Greater Happiness Social Psychological and Personality Science DOI: 10.1177/1948550615623842

Post written by Christian Jarrett (@psych_writer) for the BPS Research Digest.

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