In a Harvard experiment, students were asked whether they would choose an income of $50,000 per year in an environment where everybody else earns $25,000, or if they'd rather earn $100,000 while other people earn $200,000. Most students chose the first option.
This phenomenon, which shows that we compare ourselves to others – and not only on an emotionally free, “intellectual” level, but having a direct impact on how happy we are – surfaces in many everyday situations in our society, e.g. if our colleague gets a promotion, but we don't; or if our neighbours get a new luxury car (which stirs our need to “keep up with the Joneses”).
The question is: what are the specific, underlying reasons for this? Most conclusions suggest that we simply compare ourselves to others… and that’s it. I’ve tried to come up with a couple of possible explanations / hypothesis:
1.Status Symbol Relevant for Reproduction
Money is very often perceived as a strong symbol for success and “social status”1. But why are we interested in a high social status? The reason may be rather basic: as high social status is looked up to by others (including potential mates) it may enhance our chances for reproduction. This implies that it is not important how much we own in absolute terms, but only how we appear in comparison to others, i.e. Position or “rank status” from the perspective of possible mating partners.
Erik von Markovik, aka “Mystery”, who built a reputation in the “Pick Up Artists”-community by providing a detailed analysis of how men can become more successful with women (according to what people told me – don’t know anything about it 
) developed his suggestions around the basic view that mating partners are chosen by their social status. According to his theory, our behaviour is “hard-wired” by what we’ve learned over thousands of years living in tribes, starting back when women chose men based on their social status (i.e. leader of the tribe), thereby enhancing the chances for their children’s survival as the offspring of strong and powerful men.
This explanation sounds plausible as it makes sense from an evolutionary perspective, which is a requirement for any explanation to be correct. However, is it really true? And what are the implications?
The first implication would be that the concept of social status is only relevant in the context of mating. For example, if you are a single thirty-year-old male, and your neighbour, a seventy-year-old woman, has a higher income – how would you feel? Would it bother you more if a male neighbour, within the same age range as you (maybe even looking for exactly the same type of mating partner), earned significantly more than you did?
It would be interesting to test this hypothesis through an experiment. For example, participants may be asked the same question as in the Harvard experiment, but more detail is provided on who the group of “other people” are. In the first experiment, participants might be told the “others” are a group of seventy-year-old women, while the hypothetical peer group in subsequent experiments gets more and more similar to the experiment participants in all aspects that may be relevant in a mating context (age, gender, sexual orientation, same taste for specific types of women/men etc.).2
Another – rather positive – conclusion can be drawn from this also: we are not generally troubled by how well-off the people around us are per se… only when competing for mates. In the same Harvard experiment, students were also asked to choose between scenario I, granting them 2 weeks of holidays while others get 1 week, and scenario II, granting 4 weeks of holidays while others get 8. Here most students decided to choose scenario II. Is this because it is not directly related to social status?
2.Income May Be Perceived as Gauge For How Valuable We Are
Although wealth (amount of money at a certain point in time) and income (what we earn on a continuous basis) is money in both cases, there seems to be a significant difference in how it is perceived and its impact on our happiness.
This may be because income is frequently regarded as a payout, recognition and measurement for the value we provide to society. Although this view is not correct as there are many activities which add significant value to society and are not remunerated with money – such as being a caring mother or father, engagement in charities, or just being nice to people around us – this does not change people's perceptions of income as societal significance and contribution.
This statement may be tested in an experiment as well. For example, would the students choose scenario I, in which they have a total wealth of $500,000 while all others have $250,000, or scenario II, in which they have $700,000 while everybody else has $1,000,000. While many may still choose scenario I (i.e. the equivalent of the original Harvard experiment), my hypothesis is that a higher share of participants would choose scenario II, compared to the original experiment.
Another way of testing the hypothesis may be by detaching the gain in wealth from the “social value”-idea altogether. For example, participants may be asked the same question as in the Harvard experiment, however, this time it is not income from work but a one-time windfall from an inheritance. I assume more students would not be bothered as much by the fact that others inherit more than they do, i.e. they go for the equivalent scenario II.3
3.If Others Possess (and Spend) More Money, It Draws Attention to What We Could Spend Money on If We Possessed It
Another effect to mention in this context (which I believe is considerably less strong than those mentioned above) is: if our peers earn or possess more, we see more clearly what more wealth would bring us, as it is closer to our lives and therefore closer to our reality (which may cause us to feel envy, as it is so close, yet so far…). This may be due to the fact that we are inclined to only see the advantages that come along with money, which is not the full story (see Money: How Much Should We Strive For it to Be Happy?).
4.Potential Risk That People May Treat Us Worse If They Earn More Than We Do
Money can spoil people, and there is a risk that if our peers get wealthy, they may feel superior and treat us differently. Money can cause negative character traits to rise to the surface; the Chinese proverb “Iron is tested by fire, and man is tested by gold” is no less true today than it was a thousand years ago.
Are these points correct? As always, I invite you to question my thoughts, add missing links, or comment just because you feel like it – thank you!
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Interesting questions, Nick. I’ve been thinking about these matters a lot lately, including on my blog, because I have a lot less money these days than I used to. The money feels less adequate now than it did in grad school when I made a similar amount, for a couple of reasons; but both look closest to your #3. My friends now make more than they did when I was a grad student, so I feel more acutely the things I can’t afford. (None of my fellow grad students ever said “Hey, let’s go to this great fancy restaurant which is having a great deal right now, only $50 for the set menu!” My friends say that now.) And similarly I used to be able to buy such fancy things myself without thinking about it, which also makes me more acutely aware of what I could have.
It’s definitely not about the mating – thankfully, that part’s taken care of in my case.
Whoops, was going to add: none of this means my case is typical, of course. Just some anecdotal evidence to throw into the mix.
What about the fact that some of us (I for one) also feel unconfortable whenever they earn more/have more wealth than their peers? I do not think that scenarios II are attractive, surely they are not attractive for me. I would not like being the only one who can afford a laptop with everyone staring at me whenever I take it out of my bag, for instance. I would just end up pretending to earn less, in order not to make other people envy me. This may have to do with my European background, but I guess not only with it.
I tend to feel that that’s a nice problem to have. I have been in that situation before – I had more than my peers when I was an undergrad, and there were points it was uncomfortable and awkward. The thing is, the option of pretending to have less is quite easy – you can even genuinely have less if you want, by putting it in savings or giving it to charity. Pretending to have more is more difficult, and usually counterproductive.
Yes, to have the problem to “keep down with the Joneses” is better than having the problem of not having anything to eat! But still, I would not describe scenarios II as desirable.