"A few years ago, Michael Shermer wrote an op-ed piece titled “Why people believe strange things about money,” which cites research indicating that more people would prefer to earn $50,000 a year while everyone else earned $25,000, as opposed to earning $100,000 a year while everyone else earned $250,000. This study assumes that the prices of goods are the same in both possible scenarios, although this may be a bit of a stretch. That being said, essentially, people would rather be relatively better off as opposed to absolutely better off. The math is simple: $100,000 is more than $50,000. But the psychological drivers at work guide the ultimate decision.
As we mentioned in class, few make financial decisions in a vacuum. More often than not, other people influence the decision, sometimes in ways that appear to an outsider as being irrational from a classic economic perspective, but rational when you consider the utility gained from "winning".
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