Social Influence and Social Value

Human beings are social animals, and it is important to us how others perceive us. The clothes we wear, the cars we drive, the houses we live, all potentially influences how other people see us. So aside from their physical and practical values, clothes, cars, and houses all have social values, which make us willing to buy something at a price much greater than its utilitarian value. Even what we talk about, aside from the value of communicating information, has social value that influences how others perceive us. So we talk about cool things, we tell jokes, we gossip, not so much for communication as to appear interesting, smart, and knowledgeable, showing our good qualities as potential friends, mates or business partner.. Things that have social values provide visible symbols of social status.

It is interesting to think that while most people choose to talk cool stuff, which bring social value to the "talkers," what most people talk about determines what kind of products or what type of consumption have high social values. When most people talk about a certain product, owning that product bring the owner the attention and social status. Information spread under the disguise a random chat.

The consumption of all social products exhibits positional externality. Well, that is a confusing economic phrase, but to put it a simple way, it means that your consumption of some social product incurs social cost to other people. Here I emphasize the term "social" because the practical value is unaffected. Consider the example of houses. When you have a reasonable-size house while all your neighbors have tiny houses, then you feel good about yourself, which comes from the value of your social standing. You feel good maybe you your neighbors talk a lot about you, like how rich you are, how high your salary must be, how comfortable your life must be in such a "big" house compared to their little tiny ones. Now put your house into a neighborhood where all your neighbors have spacious houses. You feel sad, upset and to some extent depressed. You are out of the focal point of attention now. Your neighbors stop talking about you, or worse, they talk about bad things, like how bad your financial condition must be, how terrible for you to live in such a "small" house, etc. Your physical living condition is the same, but your social standing makes you feel drastically different in these two situations. That explains why we may want to be a big frog in a small pond rather than a small frog in a big pond (c.f. Choosing the Right Pond by Robert Frank).

Notice that the consumption of social value is a zero-sum game. When everyone increases the size of their houses, the social values of the houses don't change that much, though the practical values increase. This will give rise to welfare loss as we over-allocate our resources to consumption that brings social value, while the social value remains unchanged, the marginal practical value keeps decreasing, even to a level we cannot feel the increase of the practical value. Now you should understand why after we have a dramatic increase in our living condition compared to our past, we don't feel any happier. You should also understand why the GDP difference is not a good predictor of happiness: while the United States has a much higher GDP per capita than the Philippines, the Americans are not much happier than the Filipinos (indeed, the Americans are much less happy than the Filipinos according to many happiness indices).

So the lesson? Paying too much attention to the consumption of social goods is a recipe for sadness. But when you compare yourself with others, don't blame anyone. It is our nature as social animals. Evolution has made us that way, and it was advantageous in the hunter-gather society when social connection and cooperation is important and even a matter of life and death. We are hence wired to care about what others think about us, and a consequence of this is our preferences for social standing. It is not a bad thing, but if you want to be happier, you probably need to care less about others' opinions. What should we do then? Maybe first be aware of this, and realize that missing a train in painful only if you run after it (a quote from the book The Black Swan by Nassim Nicholas Taleb), and failing to achieve the success that others expect is painful if you chase after it.

The bottom line: Be yourself. Know who you are and what you want, not who others want you to be or what most people want.