Money Addiction: It’s Really a Thing


There is a fundamental principle in economics that applies to food, clothing, and even all of those shiny tech gadgets that start with the letter ‘‘i’’: The more of them we have, the less we value them.

But that may not be true when it comes to money.

New research from Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business, and his colleagues at the University of Toronto and Renmin University of China finds that the more money people make, the more they value it.

Boston Globe reports on the results of a study that both seem fairly intuitive and provide some nice background to the story of our friend from yesterday, Sam Polk the recovering money addict.

It then compared hourly earnings to respondents’ views on how important it was to them to ‘‘have a lot of money.’’

‘‘We thought it was quite possible that money was different because of its symbolic nature — when I pay you, I’m also signaling your worth,’’ Pfeffer said.

And that is what they found. The more that people earned, the more they said money mattered to them. The same correlation was not true when it came to money made from sources unrelated to work. That kind of income, Pfeffer said, has ‘‘much less implication for one’s sense of mastery or worth.’’

Oh, and my favorite part:

When asked what his research tells us about how to get outsized CEO pay under control, Pfeffer referenced an answer he has provided in the past: Tax it at a higher rate, just like any other addictive substance.

Photo: Tax Credits

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2 Comments / Post A Comment

EvanDeSimone (#2,101)

It’s a rare treat when a professor of economics lands a solid one-liner.

boringbunny (#3,260)

I just read another article – on Learnvest maybe? – about how going after bankers’ pay has actually increased their wealth – more payment shifted to investment options, which appreciated rapidly as the banks’ stocks rose. This also reminded me of an article I read long ago when people wanted to shame CEOs by exposing their pay to the public. This only increased CEO pay though because other companies didn’t want to seem poor by paying their CEOs less than their competition.

So I guess it’s solid advice for reducing “outsized CEO pay” if you only mean salary; companies will shift payment away from salary if it’s taxed much higher than stock options, for example. But if you want to discourage greater income equality, it’s not that simple.

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