Indonesia | Economics

Sunday, September 10, 2006

Misery loves (to compare with) company

Earlier this morning, I and my wife went to Carrefour unaware that today was one of those 20-percent-off-if-you-have-a-certain-credit-card day. When I found out, two things flashed in my mind: (1) Great, 20% off!; and (2) Crap, the queueing! And yes, we got both: 20% off plus a 40-minute-plus queueing at the register.

But the queueing, it happened, didn't feel too bad. Why? Because on Friday, a person with a purchase similar to mine shared his experience of arriving at a hyper-market at 7PM, to leave at 4AM in the morning for a 25 percent discount. Every time we felt ourselves getting bored waiting in line, my mantra was, "Well, at least we don't have to leave at 4AM...!"

Most people would find nothing odd with this picture. People derive happiness from other people's joy (or misery). In his enjoyable Stumbling on Happiness, psychologist Daniel Gilbert put out some facts about people's psychological tendency to compare...:
The facts are these: (a) value is determined by the comparison of one thing with another; (b) there is more than one kind of comparison we can make in any given instance; and (c) we may value something more highly when we make one kind of comparison than when we make a different kind of comparisons.

The thing is economists don't usually think of people this way -- at least, not in their economic models. For economists, people derive their happiness (or, in economic-speak, "utility") from their own private consumption of goods, and not from other people's.

It is not that economists don't realize this tendency to derive one's utility by comparison -- either through shared joy, compassion, envy, or spite. It's just that, in most cases, economists feel that they can understand enough of economic behaviour without the added complexity of correlated utilities. Many think that these correlated utilities shouldn't matter for policy.

Well, many, but not all. That's why, there is current a debate in the blogosphere on the merit of this psychological tendency to compare on government policy. The debate was begun by Berkeley economist J. Bradford DeLong here, and then taken up by various economists here and here, and then responded by DeLong here, with several rejoinders here and here. No consensus is likely to come out, though the debate itself is worth following.

PS: I know I promised Part 3 of this and this post this week. I'll try to do it before the end of next week, yes?


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