I don’t think that Caplan’s test is a good one, for a couple of reasons that commenters on his original post pointed out:
Facts about human psychology mean that for most people (unless they have a great capacity for self-delusion), consciously moving from a higher status group to a lower status group in order to feel relatively better about your status is not feasible. If one feels intellectually out-matched on the EA Forum so one decides to go and debate some primary schoolers instead, most people would experience this as humiliating, and increase the salience of their low status, more than it would be enjoyable.
A better test would be whether people would feel better when they spontaneously move up a status hierarchy because their peers lose ground. There are some measurement difficulties and confounds here too, both because it’s socially taboo to rejoice in your peers suffering (though obvious schadenfreude is a thing), and because events which reduce the status of all your peers (e.g. everyone else’s crops get destroyed) often threaten you too.
In most cases, improving your local status by moving from a higher status group to a lower status one, also lowers your global status. If one moves from an elite university (where one is below average in local rank) to a low tier university (where you are high in local rank), your overall status has nevertheless declines.
This makes sense, because a large part of one’s status often comes from one’s community/local peers. So moving to a lower status group is often undesirable.
I think Bryan convincingly argued people do not care much about how their wealth compares with that of their neighbours. However, they could still care about how their wealth compares with their peers, which will remain the same to a significant extent even if people move to lower income areas.
In any case, I still think the absolute level of wealth significantly matters for welfare. Otherwise, I would not expect self-reported happiness to increase with real gross domestic product (real GDP) per capita within the vast majority of countries.
Caplan says that Schooling is Mostly Signaling—Econlib If I told him “since education in US is just about signaling, an American should move to a place where their degree + alma mater would be regarded as more valuable—e.g., a developing country, or a poorly educated area, etc.”, d’you think he’d agree?
I do not think Bryan would agree with that. Studying in the United States (US) means a higher chance of being employed relative to studying in a random country, but the US has higher salaries, which plays against leaving.
Don’t you think a similar objection would apply to Caplan’s “proof” that people don’t move to poorer neighborhoods because something something externalities?
(Moreover, I just realized thata “realists say that people only care about relative wealth” is a remarkable strawman, and it’s refutation does not entail that people barely care about relative income—and this is the first time I see an Economics professor mixing claims about wealth and income in the same argument)
Yes, I think a similar objection applies. However, I would still expect more people to move to neighbourhoods with a lower mean income if people cared a lot about their income relative to their neighbours. I believe people’s behaviour is better explained by people caring much more about their income than their income relative to their neighbours.
Or: people care about relative income because: a) it entails more wealth (as capital gains accumulate faster than returns on work) which entails more power, like the possibility of funding intellectuals to say that inequality doesn’t matter; and b) it signals status, or it is used to buy status-goods, such as buying a nice house in a rich neighborhood without fearing your neighbors wanting to sack it (since they might care about relative income, even if you don’t)
Btw I just realized I can totally bite this bullet: I have lived in 4 cities in the last decade, and I prefer to live in the cheap one not only because of the low cost of living (like many online workers have been doing), but also because I never feel poor in relation to others...Which results in mixed feelings, though, as I don’t want to feel much wealthier than the surroundings—it makes me wonder of I should be paying more for services and taxes etc.
Also in his original formulation “high status” environments are often simply nicer (especially to people who disproportionately care about material wealth and status). The people that do move to the developing world tend to be people that don’t mind inconveniences associated with [global] relative poverty like having to drink bottled water or everything else around then looking a tad scruffy.
Above all, Filipinos benchmark their wealth relative to other Filipinos (even if their dream involves a Green Card). Americans don’t start benchmarking themselves against Filipinos and start thinking that cars are exotic wealth just because they move to Manila
Also in his original formulation “high status” environments are often simply nicer
Agreed. I think this is another important confound.
People’s concern for relative status may seems clearer when we consider cases of ‘moving up’ into an area of people who are relatively wealthier, i.e. even if the environment were materially much nicer, I think most people will find it very salient if they are the only non-wealthy person there.
I don’t think that Caplan’s test is a good one, for a couple of reasons that commenters on his original post pointed out:
Facts about human psychology mean that for most people (unless they have a great capacity for self-delusion), consciously moving from a higher status group to a lower status group in order to feel relatively better about your status is not feasible. If one feels intellectually out-matched on the EA Forum so one decides to go and debate some primary schoolers instead, most people would experience this as humiliating, and increase the salience of their low status, more than it would be enjoyable.
A better test would be whether people would feel better when they spontaneously move up a status hierarchy because their peers lose ground. There are some measurement difficulties and confounds here too, both because it’s socially taboo to rejoice in your peers suffering (though obvious schadenfreude is a thing), and because events which reduce the status of all your peers (e.g. everyone else’s crops get destroyed) often threaten you too.
In most cases, improving your local status by moving from a higher status group to a lower status one, also lowers your global status. If one moves from an elite university (where one is below average in local rank) to a low tier university (where you are high in local rank), your overall status has nevertheless declines.
This makes sense, because a large part of one’s status often comes from one’s community/local peers. So moving to a lower status group is often undesirable.
Thanks for the good points, David!
I think Bryan convincingly argued people do not care much about how their wealth compares with that of their neighbours. However, they could still care about how their wealth compares with their peers, which will remain the same to a significant extent even if people move to lower income areas.
In any case, I still think the absolute level of wealth significantly matters for welfare. Otherwise, I would not expect self-reported happiness to increase with real gross domestic product (real GDP) per capita within the vast majority of countries.
Caplan says that Schooling is Mostly Signaling—Econlib
If I told him “since education in US is just about signaling, an American should move to a place where their degree + alma mater would be regarded as more valuable—e.g., a developing country, or a poorly educated area, etc.”, d’you think he’d agree?
Hi Ramiro,
I do not think Bryan would agree with that. Studying in the United States (US) means a higher chance of being employed relative to studying in a random country, but the US has higher salaries, which plays against leaving.
Don’t you think a similar objection would apply to Caplan’s “proof” that people don’t move to poorer neighborhoods because something something externalities?
(Moreover, I just realized thata “realists say that people only care about relative wealth” is a remarkable strawman, and it’s refutation does not entail that people barely care about relative income—and this is the first time I see an Economics professor mixing claims about wealth and income in the same argument)
Yes, I think a similar objection applies. However, I would still expect more people to move to neighbourhoods with a lower mean income if people cared a lot about their income relative to their neighbours. I believe people’s behaviour is better explained by people caring much more about their income than their income relative to their neighbours.
Or: people care about relative income because: a) it entails more wealth (as capital gains accumulate faster than returns on work) which entails more power, like the possibility of funding intellectuals to say that inequality doesn’t matter; and b) it signals status, or it is used to buy status-goods, such as buying a nice house in a rich neighborhood without fearing your neighbors wanting to sack it (since they might care about relative income, even if you don’t)
Btw I just realized I can totally bite this bullet: I have lived in 4 cities in the last decade, and I prefer to live in the cheap one not only because of the low cost of living (like many online workers have been doing), but also because I never feel poor in relation to others...Which results in mixed feelings, though, as I don’t want to feel much wealthier than the surroundings—it makes me wonder of I should be paying more for services and taxes etc.
Also in his original formulation “high status” environments are often simply nicer (especially to people who disproportionately care about material wealth and status). The people that do move to the developing world tend to be people that don’t mind inconveniences associated with [global] relative poverty like having to drink bottled water or everything else around then looking a tad scruffy.
Above all, Filipinos benchmark their wealth relative to other Filipinos (even if their dream involves a Green Card). Americans don’t start benchmarking themselves against Filipinos and start thinking that cars are exotic wealth just because they move to Manila
Agreed. I think this is another important confound.
People’s concern for relative status may seems clearer when we consider cases of ‘moving up’ into an area of people who are relatively wealthier, i.e. even if the environment were materially much nicer, I think most people will find it very salient if they are the only non-wealthy person there.