Positional good: ‘How much do I need?’ vs. ‘I want more than the next guy!’
I love behavioral economics because the field defines helpful concepts for understanding humans behaving as humans; oh, and they often back it with real empirical research, not just opinion. The better we understand how we behave the better we can design for good outcomes.
An example of such a concept from the Rotman Magazine’s Q&A interview with Dan Ariely, the behavioral economist:
Q: You have said that people don’t know what they want, unless they see it in context. What are the repercussions of such ‘relativism’ for decision making?
A: The term ‘positional good’ refers to the idea that in many cases, people don’t really care how big something is, they just want to have more than the next guy. Take sea lions, for example: they want to be bigger than the other sea lions, because if you’re bigger, you will attract more females. But in the race to become bigger, they tend to get much too big, and many die from health complications. Now think about humankind, and how nice it would be if our collective ‘footprint’ was half the size that it is now: we would use less energy; we would need less resources. In the race to have ‘more’, we have hurt the species — all because we care so much about comparing ourselves to others. Executive salaries fall into this category as well. Many executives make a substantial amount of money. The fact is, nothing would happen to their lifestyle if they made a bit less. But the way they look at it isn’t, ‘How much do I need?’, but, ‘I want more than that guy over there’. And it’s not just executives — we are constantly making these types of comparisons in many domains of life.
So, could one design for positional good, where having more or doing better than the next guy could help people actually make better decisions?
The U.S. dollar coin: why you won’t use it
Yet again the US Mint has announced a new $1 coin. This time they’re hoping the faces of U.S. Presidents will drive adoption where Sacagawea and Susan B. Anthonyhave failed before. Sorry, but this solution won’t work either. You aren’t going to use the new $1 coin for one simple reason: the paper version of the dollar is still alive and well.
If the government really wanted you to adopt the coin, then they’d stop printing the dollar bill. In fact, this is the entire logic behind having a coin: hard coins can be in circulation much longer than flimsy, easy-to-rip paper. The $1 coin represents a lower cost option over paper to the U.S. Government.
But the government will continue to print bills so will never adopt the coin. Why? Because the U.S. Mint makes the coins and the U.S. Bureau of Engraving and Printing makes the bills. They work from separate budgets, and therefore have no incentive to make a trade-off. The Bureau of Engraving and Printing will never be incented to cut off their own funding for printing dollars to help the U.S. Mint with its $1 coin efforts. And that is why you’ll never use the $1 coin: because you don’t have to.
