Thursday, October 23, 2008

How Social Ranking Affects Choices

Dutch National Lottery In the famous Dutch Post Code Lottery, the winning ticket is drawn on the basis of the post code. When the post code of somebody who didn’t buy the ticket is drawn, this person is surrounded by winning neighbours who are suddenly very rich. As well as the regret for not buying the ticket, this unlucky person feels a strong sense of envy. The case of a Dutch women who, in anger and frustration, actually sued the lottery for the reimbursement of moral damages was reported in the press. The way we evaluate the outcome of our decision depends on the context in which we are acting - whether we are alone or with other people. In the same way, we modify our behaviour choices when other people are present, even when they are only spectators - these are the conclusions of a new study conducted by three economists. The researchers studied how social ranking affects choice behaviour. They investigated how people evaluate the outcome of their decision in private versus social contexts and whether social and private emotions influence monetary decisions in different ways.

What happens when we are not acting alone, but have to factor in a social context? The research shows that social emotions linked to a success or a failure are stronger than in the ‘single actor’ scenario. Moreover, we behave more boldly in a prudent environment (against a weak opponent) and more prudently against a bold opponent. Social competitive emotions are stronger than their private counterpart. Each day, we make decisions and evaluate their consequences and each time, we fall into the trap of counterfactual thinking, recreating in our mind all other possible scenarios (along the lines of, “I would have been better off choosing the other option”). The relief resulting from a good choice can vanish if we realize that another choice would have been better still; when this happens, we regret our choice. Relief and regret are emotions linked to an evaluation of a choice behaviour, so they arise from a reasoning process and they play an key role in evaluating our behaviours and in adjusting future ones. What happens when we are placed in a social context? Usually, we feel envy (the social analogue of regret) when we are comparing our negative situation to the positive situation of another. Conversely, when we are the winner, it appears there is no room for empathy; gloating always prevails.

In a social context, emotional responses to a choice (either good or bad) will be enhanced due to social comparison: social emotions have stronger effects than their private counterparts. Moreover, they operate differently, and they affect our behaviour in a deeper way. If, in a private context, failures matter more than successes, in social situation, competitive spirit prevails. In many situations, the most important thing is to gain the upper hand over the others; in this case, gloating is understandable, but contexts are always changing and so is the point of view: the important thing to do is to minimize envy; that is the social difference between us and the others. For that, I need to adjust my behaviour to that of others. Nonetheless, when a human is placed in a social context, even with a minimal interaction and without any induced competition element, he immediately sees his status concern prevail. This fact has serious implications on human choice behaviour.

In the study, the subjects played a lottery game but their actions never influenced the outcome of the game for the others. Emotional arousal was assessed by recording the skin conductance responses and heart rate of all participants during the entire experiment. Despite the absence of any competitive element, gloating looms larger than envy. On the contrary, in the single player scenario, the regret over a failure is stronger than the relief over a success. Social emotions were thus shown to operate differently from private ones: social competitive emotions are stronger that the private counterparts even when in the lab and there is no induced competitive element. Data on self-reporting rates and physiological responses were extremely consistent in their experiment. Effect of the environment on choices: social and private Participants in the study chose among lotteries with different levels of risk and faced opponents with different gaming styles. Again, satisfaction for a victory was greater than regret for a defeat when in a social context, contrary to what happens in a private context.

This is the economic analogue of the dominance complementarity observed in postural relationship, where a dominant posture is likely to induce a submissive one, and vice-versa. We produce the most rewarding behaviour in a competitive environment. To explain the difference between the relative weight of gains and losses in private and social environments one may consider the different impact of the outcome in the two scenarios. For example, in the private context, an individual may find that her survival is at stake. On the other hand, climbing the social ladder and becoming dominant could result in having many sexual and food advantages. If ranking first is much better than ranking second, the difference among the lower ranks is not as significant. The behaviour is therefore driven more by the prospect of winning than by the fear of losing.

Interdependent Utilities: How Social Ranking Affects Choice Behavior. 2008 PLoS ONE 3(10): e3477
Organization in hierarchical dominance structures is prevalent in animal societies, so a strong preference for higher positions in social ranking is likely to be an important motivation of human social and economic behavior. This preference is also likely to influence the way in which we evaluate our outcome and the outcome of others, and finally the way we choose. In our experiment participants choose among lotteries with different levels of risk, and can observe the choice that others have made. Results show that the relative weight of gains and losses is the opposite in the private and social domain. For private outcomes, experience and anticipation of losses loom larger than gains, whereas in the social domain, gains loom larger than losses, as indexed by subjective emotional evaluations and physiological responses. We propose a theoretical model (interdependent utilities), predicting the implication of this effect for choice behavior. The relatively larger weight assigned to social gains strongly affects choices, inducing complementary behavior: faced with a weaker competitor, participants adopt a more risky and dominant behavior.