Kahneman, Greed and Success

I think the typical soft leftist or left liberal doesn't think that way. Because their MBA colleagues have made sacrifices for money doesn't make them deserving. In their view those who struggle for societally praiseworthy activity **should** have higher incomes (or at least decent incomes, where decent equals living like a SWPL in Manhattan or SF). If that art major or teacher or journalist doesn't live well then the notion that someone in a hedge fund should make 100x more even if they sacrificed for it seems even more heinous.

Of course, such a belief has a tooth fairy aspect to it, but in my experience, the people I know who lean left but aren't very reflective (not your think tank political activists) tend to feel this way. Hence the appeal of "to each according to his needs."

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.

Shouldn't you preface your conclusions with the following?

Kahneman's evidence is a good reason for reduced concern about material inequality if you attend an elite school. (Whatever elite means in 1976)

What about average Joes? Can they achieve their personal goals on the same level? I think this is what leftists are all about when they want redistribution. They're not now nor were they ever really concerned about those attending and graduating from elite schools.

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.

Interesting how leftists are so inclined to redistribute money, it being such a blatantly "false criterion of real value" and all.

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 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. Huge groups differences are a great place to sniff out solutions to sociological puzzles. Jews make a lot more money than either intelligence and education can explain, and group differences in money orientation is one obvious area of sociological neglect.

This might also explain why Jews are overrepresented in both socialism and libertarianism, which seem to be opposite approaches to a similar belief that material well-being is the central issue of human happiness (a belief which also downplays or rejects nonmaterial aspects of human happiness like culture, ethnicity, family and religion).

So this would also be something of a challenge to, e.g., Kevin MacDonald arguments of Jewish hyper-ethnocentrism. "Greedy Jews" would actually be less likely to care about ethnicity and religion. Their Universalism would be a genuine adjunct to materialism.

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.

"It's no trick to make a lot of money, if what you want to do is make a lot of money." - Mr Bernstein, in Citizen Kane

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.

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@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.

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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).

What about the "losers"? Bite your tongue. When you call lower-income people "losers," you're falsely assuming that we're all racing for the same finish line: material success. 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. And if poor they don't consider their lack of riches a big deal, why should anyone else?

The above is a great passage. My observation fit well with it.

Also:

I had a friend who was poor but had a wonderful and beautiful wife. I envied him more than I envy Warren Buffet. I also envy great athletes more than the super wealthy. Of course my envy is not great in any area, thank God.

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.

I love the above comment in leftists not being reflective on a post that makes a general claim about income inequality based on a sample of respondents from elite schools. Wow. Mr. Caplan, I think your readers deserve a response to the criticism of your interpretation of this study. Do you really think you can suggest that poor people just don't care about being poor based on a sample of people who went to elite schools? Are you honestly willing to ignore everything that led to them being in such schools as valid variables? Or would you like to modify or qualify your claim?

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?

"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. And if poor they don't consider their lack of riches a big deal, why should anyone else?"

Normally I am sympathetic to this POV, but this quote is quite an overstatement. It may be true of many subsets, I am sure (Occupy Wall Streeters come to mind, and in another era, priests and nuns). But I am sure there is also a large subset of poor kids who would say getting rich is a very big priority but those kids don't have a realistic path to increase their chances of doing so.

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.

In Argentina we are all losers. Most of us have not been able to attain our economic goals. If this were true (that we are all losers):
>one recipe for a dissatisfied adulthood is setting goals that are especially difficult to attain.
we would be all dissatisfied.

Yet, we keep on trying and fighting.

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

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.

"Interesting how leftists are so inclined to redistribute money, it being such a blatantly "false criterion of real value" and all."

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

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

Agreed!

No redistribution to people who attend elite schools.

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

But to a large extent, lower-income people are just racing for other finish lines. [...] To a large extent, incomes differ because priorities differ

Do you have any evidence for this at all?

I suppose a corollary is that increased wage inequality must be due to increased preference heterogeneity. Do you believe that, too?

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.

• My point is not that Kahneman's evidence refutes all arguments for income redistribution, but merely that his evidence is a good reason for reduced concern about material inequality.

Evidence that a person drinks water is no reason for reduced concern that the person appears to be drowning.

The relevance of inequality lies entirely elsewhere. Extremes of inequality presaged the 1930 and 2008 financial crises. The general prosperity of the 1950s and 1960s went hand in hand with declining inequality. As US inequality has increased, US social mobility has decreased. Plutocracy is inimical to liberty.

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.

As some commenters have pointed out, this study was conducted on students from elite schools, so there is almost certainly an interaction effect.

However, there is research in other areas about motivation affecting income. There is a section on "Handbook of competence and motivation" ("competence as success") on this (available on Google Books)