CeDEx workshop - Jeroen Nieboer (London School of Economics)

How much do we value social status? An experiment

People value social status. Observational and experimental evidence suggests that people’s valuation of status often has a strong intrinsic motive: people prefer to outrank others even when they cannot derive any material benefit from it. But what motivates people to seek status when it has only intrinsic value? I conduct a controlled laboratory experiment where I measure subjects’ valuation of status as spending on an intrinsic status good: a ceteris paribus increase of their rank on a performance measure that has no material value, among peer subjects with which they will have no future economic interaction.  I investigate the effect of two features of the status good: (i) whether status is anonymous or identifiable and (ii) whether subjects’ performance is perfectly observable between peers or only after it has been modified by status spending. I find that status spending is not sensitive to identifiability, but spending is significantly higher when performance is not perfectly observable. Further experimental results reveal that it is not unobservability of performance per se that drives higher spending, but unobservability of performance at the time of deciding to spend on status. Higher spending on the intrinsic status good  is thus driven by the lack of a reference point for peer performance.