What Would Make Americans Eat Better?
Demand may be the key to healthier diets.
What Would Make Americans Eat Better?The desire to keep up with the Joneses is a familiar one to many people. But those assessing their own wealth relative to others’ often have a skewed perception. That’s because debt figures more prominently in sizing up one’s own financial position than it does when making inferences about someone else’s, find Chicago Booth’s Abigail Sussman and her coauthors. The result could be a tendency to overspend in an attempt to keep pace with the wealth projected by peers.
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In this project, we were trying to understand how people’s perceptions of wealth differ for themselves and others. And in particular, we wanted to understand how people might differentially weight their perceptions of assets versus debt, and the motivation for this question is that often we observe people making conspicuous purchases. So maybe we see somebody driving to work in a really fancy car, and our immediate reactions are to the car itself. And so what we might be less attentive to is the amount of debt that the person took on in order to lease or purchase that car. In that case, this can lead us to essentially have a false understanding of how much money our neighbors or friends have. And this can, as a consequence, lead us to overestimate how wealthy they are relative to ourselves.
And so in this research project, what we’re able to do is we’re actually gonna hold constant information about the other person’s debt, which is something that we don’t often have in real life, and we wanna understand: Do people still, in some sense, underweight or ignore the presence of that debt when they’re observing spending in others? The way that we did this was by giving people information about both—in this case we looked at cars and houses as two different types of products. And so, for example, in the case of houses, we told people to either imagine that they had purchased a home or that somebody else had purchased a home, and then we gave them 20 different cases where the home was worth a certain value and participants were also told the value of the mortgage.
So for example, you could learn about a house that cost a million dollars and so you could say, “Mr. D. purchased a home for $1 million and he took out a mortgage of $200,000 to pay for that house.” Versus: “Mr. G. purchased a house for $1 million and he took out a mortgage of $500,000 to pay for that house.” And so we varied both the amount of the house and the amount of the mortgage. We also varied whether people were imagining somebody else who had purchased this house or they were thinking that they had purchased the house themselves, and then what we wanted to understand was: How wealthy do people feel? Or how wealthy do they think other people are given the same information about the house and the price, the cost of the mortgage?
So what we found was that, even in cases where people have complete information about not only the price of the home but also the mortgage value, people still tend to overweigh the debt that they carry relative to the debt that other people have. And so what that translates to in this context is that when people are using a home purchase to evaluate somebody else’s wealth, they tend to rely primarily on the price of the house, without as much regard for the fact that the house comes along with a lot of debt in many cases, or without regard for the amount of debt that the other person may be carrying. In contrast, when people are evaluating their own wealth, they tend to place much greater weight on the amount of debt relative to the price of the home.
So on one hand, this focus on your own debt, and relative underweighting of other people’s debt, could lead you to spend more in cases where you might not have the means. It can also lead people potentially to repay their own debts faster. And in particular, in some of the studies in the paper, we examine expectations about future wealth and we find that people think that they will be wealthier in the future relative to others. And the main driver for this expectation is the belief that they will pay back their own debts faster. And so focusing on one’s own debts can lead us to eliminate those debts.
So when we think about this research, we consider implications for conspicuous consumption. And so while people tend to look at what neighbors and other colleagues, for example, have, they tend to look at this only by seeing the asset side of the equation. Not only that, but even when people are prompted to know the amount of debt that comes along with it, they just don’t care quite as much about it. And so one of the insights from this research is that if you are somebody who tends to compare yourself with others, you might wanna take a moment to think not only about what does this person have, but also about how costly it is for them in the form of debt to be having these purchases, rather than just think that because this other person has these physical possessions that necessarily means that they’re better off financially than you are. And the hope is that this will lead people to pause before making their own purchases in order to keep up with their neighbors.
Demand may be the key to healthier diets.
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