Kahneman, Greed and Success

As a “leftist,” I do not disagree that putting one’s attention to achieve something will no doubt help to achieve it. This is a platitude. It is preposterous that such a principle deserves a Nobel prize. The point of leftist political leaning is that “money” is a false criterion of real value. Because of market imperfections — monopoly, subsidy, externality, assymetry of buyer and seller — there is a diseconomy and a distortion regarding the money-price-market mechanism as a social guidance system. Furthermore, the many dynamics of monetary systems — e.g. Minskyean endogenous crises — further underscore the inadequacy of neo-liberal and behavioristic economic ideology.

Professor Caplan,

While I do think this is a very insightful blog and presentation of Mr. Kahneman’s research, I think it may be inappropriate to infer that “his evidence is a good reason for reduced concern about material inequality.” I have not read the book; so, I do not know the sample and the data, but I wish I did. There may be presence of a selection bias–I know this is a common “cry-wolf” from economists, but I think it’s very useful in this context. To be absolutely clear, you mention that these are among higher educated students. While this result seems very intuitive for the higher educated in white collar positions, it does not give inference about the entire population of U.S. citizens. Specifically, workers in relatively low-skilled jobs. Positions that require low human capital have has seen real wages decline over time, yet this is not assessed here. So, while this suggests very interesting conclusions for the people with high human capital endowments, it doesn’t really say much about those that have, likely, the biggest socioeconomic problems. So, this may not be answering the question we’re all interested in. It answers a damn interesting question, but not the one that you may be claiming.

I have long believed that the same applies to cultural values and economic outcomes for entire countries or cultures. People will and do strive for different priorities, with different outcomes.

Cultures placing very high value on tight interpersonal group relationships (family, clan) will have a hard time escaping from nepotism and individuals will generally put the preservation of personal ties before the achievement of individual financial goals. Their societies will be cozy, but somewhat lose out on economic success.

Cultures placing value in abstract terms (rules) will accept degradation of personal ties for the sake of abstract gains (say, rule of law) and will place value in the achievement of impersonal indicators (money). Their societies will likely be richer. But not especially cozy.

Come to think of it, this is well suited to Mary Douglas type group – grid analysis.

This is also a possibly more important variable to plug into Gregory Clark’s theory than time preference.

Both urbanized Jews and Anglo-Saxons probably did undergo selection for materialism. Not coincidentally these are also groups most oriented towards Universalist politics.

this line in your blog “But to a large extent, lower-income people are just racing for other finish lines. Leftist outrage over income inequality is therefore deeply misguided. To a large extent, incomes differ because priorities differ. ” is beyond ridiculous.

yes, for the most part, if you have a passion and a talent and a drive to succeed most will succeed and be paid for it. how much you get paid has nothing to do with effort. when i started working in the late 1970s ceo’s would have been embarassed to demand the compensation that ceo’s earn today relative to their lowest paid employee. in addition, the growing inflow of foreign capital in the past 30 years made it easy for almost anyone in the financial industry to make outsized money whereas brilliant engineers in the real goods sector fared less well. if, as i suspect, the direction of profit growth shifts in the coming years from the financial to the nonfinancial industry, let us see how many newly minted hard working finance mba’s make the kind of incomes made by those of the prior generation. just read how many young bright hard working earnest and bright people are getting laid off by the street. hard work brings its success if you chose a field in which you have talent, how much money that returns is dependent on a large number of other factors.

@steven

You say a ’70s CEO would have been embarrassed to ask for one of today’s packages. Why? Greed, fwiw, seems to me a constant more or less in human behavior. And America in the late 19th century had some truly startling gaps in quality of life, from urban slums and poor farmers to the Astors and Vanderbilts.

I wonder what else is different about the average CEO today versus 40 years ago.

My take-away from this as a parent would be to try and assist my children in identifying their [the children’s] goals at that crucial age so that they are at least working toward something. Of course goals may change, but it takes away the probability of a few freckless years. As a secondary thing, a parent may want to help a child assess whether a goal is probable or improbable.

The above sounds like common sense, but I think a lot of parents give it short shrift. I think too many people spend their twenties a bit adrift for lack of goals, or at least confusion about what they want.

If you want your children to be happy, help them set their goals, probable ones, and set them toward that achievement. If making money isn’t one of those goals, that’s okay (and maybe your should be showing them frugality so that it’s not a problem).

Bryan seems to assume that the 17-18 year-olds’ responses were evidence of their desires for money.

But wouldn’t it be equally fair to assume that the students have already adjusted their desires to their expectations? So the kids who think they are the best of the best within the group of elite students will be more likely to say what they really want–monetary success. And those who do not think they are that good will downplay their desire for money. That could happen at the level of censoring themselves when answering the survey, or even at the level of changing what they want in light of what seems possible. Kids who have gotten into elite schools have already participated in a big years-long tournament and may have pretty good ideas of their strengths and weaknesses.

If my guess is true, then I’d expect that people with lesser abilities start to adjust their desires early in life, and that it would be very hard to separate what someone wants from what they think they can get. So we could say lots of people start out greedy when they are young, but most have it pounded it out them over their youth by a growing knowledge of their limitations. That might answer some of Jason Malloy’s questions–it’s not who is greeder, it’s who has it beaten out of them sooner.

Either way, you’ve made me want Kahneman’s book now.

Perhaps in some cases the poor don’t consider their lack of riches to be a big deal because they’ve adapted to the situation that they find themselves in?

The general point is right though, when considering income inequality one needs to consider how much income affects ones utility.

But could this be applied to other things as well? Should education or healthcare or anything else be allocated based on how much people value it compared to others?

This recalls Erik Turkheimer’s misguided rhetorical point against race/IQ research, that respectable sociologists wouldn’t study a link between Jewishness and greed. Well… no wonder sociology sucks.

Because, of course, scientists are in no way ever responsible for the ends to which their research is used (or misused), no matter how heinous or destructive the outcome.

This is not a universal cause of dissatisfaction with ourselves. We are dissatisfied with our government and all the politicians.

If Argentines aren’t satisfied, then why did they recently give the incumbent President another term? I think that the answer is status quo bias, a subject Kahneman discusses in some of his other works. Every Argentine knows that Chile is a growing country, but few emigrate or vote for change. It’s easier to adjust expectations downward. Others, including people in the United States who do not expect opportunities to earn high incomes learn to expect less, too. The extreme is learned helplessness.

In other words, “heightened attraction to rewards.” (“and risk taking”?)

http://www.ritholtz.com/blog/2012/01/psychopaths-caused-the-financial-crisis/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

I take Kahneman’s evidence here as yet another counter-example to George Loewenstein’s view that happiness research and leftist politics are natural bedfellows.

I think the first part of this essay by Scott Sumner thoroughly demolishes the idea that happiness research is terribly relevant to policy goals. If you don’t have time to read it, Sumner basically takes the whole “happiness is based on your personality, not your environment” idea to its natural conclusion and points out that if all you care about is happiness then it is a waste of time to clear landmines from an area because getting your legs blown off won’t affect your happiness in the long run.

I’ve always thought the the Leftist obsession with redistribution had more to do with buying votes than anything else.

I find that unlikely. Left-leaning people who do not hold political office and have no plans to run for office in the future still hold redistributionist positions. And Bryan demonstrated in his first book that because your impact on any given election is so small, people tend to vote expressively and idealistically instead of with their pocketbooks.

Greed has two elements: self-interest AND excess. Therefore, self-interest is not necessarily greed. Also, wealth is relative and a function of perception. If one wants less than he or she is able to produce, a sense of wealth (and peace) ensues. So, it is a matter of learning to “want” less than one “needs.” If one properly sets goals to serve needs, then one would be much less likely of perceiving underachievement.

This is silly, only a small fraction of the population are really in a position to trade off money for career success. Yeah, if youre a Harvard undergraduate then you can sit back and decide whether you want to go into investment banking and make a huge salary, or (eg) go into something like academia or policy work and earn much less. So if youre just talking about high achievers then you do have a trade-off and you can validly talk about how a large salary is a ‘choice’.

However for people who come from less privileged backgrounds, who either dont have the option of going to college or who go to very low tier colleges, this isnt the case. These people generally dont have the option of making $100k+ no matter how badly they want it. Its comically insensitive to suggest that some ghetto kid who grew up in a broken family had the option of getting a better job, if only he had just cared a bit more about money. The research doesnt apply to these people at all, you are generalising way beyond what the data actually shows.