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The Economic Causes And Consequences Of Envy

November 8, 2010

The use of experimental techniques in economics in recent years has demonstrated that decision making of individuals’ is guided not only by an individual’s own benefit, but also by material gains that other individuals can have in their social network; in a nutshell, out of envy. But within this research framework there is still another challenge: the discovery of the evolutionary origin of envy and theoretical proof of its possible effects on companies. This is what Antonio Cabrales, Full Professor of the UC3M Economics Department, has tried to do in a new research study, recently published in SERIEs, the journal of the Spanish Economic Association.

The concept of envy used in this study is that which is known in technical terms as “inequality aversion”. That is, those individuals are willing to spend resources of all kinds (monetary, effort, etc.) as long as differences in material well-being with respect to other people are reduced. In this scientific article, envy is explained as something which is the result of competition for limited resources. “What the article demonstrates is that there are powerful evolutionary reasons for being envious, and as such, these reasons are encoded in our genes”, stated Professor Cabrales.

According to this hypothesis, envy could have its origin in the fact that the resources obtained from work, for example, are used afterwards in some type of interpersonal conflict, such as when selecting the best partner or dominating the herd. In these cases, it is important to have accumulated more resources that the other, so that victory not only depends on having a lot, but on having more than the other. “For this reason it is important that education and professional training correct these tendencies because of their potentially dreadful consequences for the individuals and the group, as they have done from the Ten Commandments to Shakespeare’s Othello”, he recalled.

The largest part of this study is theoretical and it has employed game theory techniques applied to the problems of interpersonal and intertemporal decisions presented. In addition, an experimental part was also carried out to analyze the effects of envy on actual subjects. For that purpose, a group of undergraduate students were placed in a computing laboratory in order to make decisions that had concrete monetary effects for them and at the same time for other people. Finally, this research has delved into the analysis of data used in the labor market, to try to discern how envy affects different variables regarding hiring, salaries, movement between companies, etc.

One of the things that this study points out is that there are many phenomena in the labor market which are easier to understand once envy is taken into account. For example, internal promotions, or the salary range of workers in companies are more compressed than one would think, if one takes into account individual productivity. “The effects of envy”, Professor Cabrales pointed out, “can be observed in the compression of the salary scales, in promotions that are slower than would be recommended based on efficiency, and in which the most highly qualified leaving a company can have serious effects on those who stay”, he concluded.

Image Caption: This is a picture to show envy in just a facial expression. Credit: Florencia Cárcamo

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