The Why Files The Why Files -- whyfiles.org

Stem cells + 10: Lessons limits and laments
POSTED 23 OCTOBER 2008

On Wall Street, the ghosts, goblins and ghouls arrived early this year!

Fear. Dread. Anxiety. Fess up: If you own stocks, bonds or other "financial instruments," you got that queasy feeling when you read headlines about companies and markets teetering on the brink of insolvency or plunging into financial oblivion.

Trust is gone. Those banks that have not disappeared are refusing to lend to each other. Liquidity is gone too. California asked to bum a few billion bucks from Uncle Sam. Iceland's "prosperous" Internet banks closed their doors, and one posted this reassuring statement on the web:

 No deposits or withdrawls message to real account holders

During a fright-filled preamble to Halloween, a confused U.S. government threw around multi-billion-dollar bailouts like so many Frisbees -- and with about as much effect. You'd be forgiven if you thought that money -- or Wall Street computers -- have taken command, pushing people to the sidelines.

The Why Files needs to know: What can science tell us about financial behavior?

florCould thinking about money make me less generous and more socially isolated?

florIs it good or bad to invest like an animal?

florEconomic behavior is defined as rational behavior, right?

florHeavy-duty investing and stock trading: Mecca for thrill-seekers?

Money: Root of all evil?

Sepia toned photo of crowd outside on Wall Street
A crowd on Wall Street during the Bankers Panic of 1907. The failure of a large financial institution triggered panic, and the stock market lost almost half its value. Financier J.P. Morgan helped to stem the crisis by pledging a large amount of his own money to shore up the financial system.

We've heard constant caterwauling about the pain Wall Street's crash-'n-burn has inflicted on investors, home-owners and retirees. But simply reading financial headlines 24/7 could exact a more personal cost, according to Kathleen Vohs, an associate professor of marketing at the University of Minnesota. Her studies predict that the ongoing financial shrinkage will "cause problems for interpersonal relationships," she says. "Our theory would say that when people are frequently reminded of money, they will be less socially sensitive, maybe even malicious. We'll see more arguments at home, more disagreements on the street, people acting more rudely. But there will also be an emphasis on 'What am I going to do about me?' which can be beneficial."

In a series of experiments, Vohs found that having money on the back of your mind could make you (in Why-Files words) a bit nutty. At least it changes your behavior, for better or worse, away from dependency and toward self-sufficiency.

In 2006 (see #1 in the bibliography), Vohs reported on a series of experiments that used a psychological technique called "priming" to test the mental effects of money. These studies compared subjects who were exposed to the idea of money to others who were not. The exposure, or priming, occurred through solving word games that included financial terms, noticing play money or photos of money, or hearing a story about money.

Vohs found that these subtle exposures to the concept of money caused the experimental subjects to:

florwork longer at solving a paper-and-pencil problem before seeking help;

florbe less helpful when they had a chance to aid someone who had dropped a handful of pencils;

florbecome less generous when asked to donate to a fictitious charity; and

florgrow more socially remote. (When asked to set up chairs before an interview, the money-primed folks placed the chairs significantly further apart.)

Oddly, these changes were stimulated by simply implanting a mental image of money; none of the subjects had handled cold cash or described their personal financial woes. "We never used real money, or promised to make them rich, we just activated the concept of money," says Vohs. But this is exactly the type of exposure we might expect in these panicky times, when people are paying more attention to their investment statements, and watching headlines about evictions, market conditions and insolvent banks.

Word find puzzle with financial terms circled
This kind of suggestion about money is enough to change behavior.

Vohs is now trying to understand what gives such clout to the concept of money. "Why? is the big question that emerged from the research," she says. "When people are reminded of money, does it trip off the stereotype of a rich person? No. Do they subjectively feel richer or poorer? No, this does not seem to be the case. What seems to be happening, when you remind them of money, is that they move into a view of the world from their own perspective, and have very difficult time seeing the perspective of the other."

Money: Root of pain?

Although the subject of money is painful to many people right now, Vohs and colleagues Xinyue Zhou and Roy Baumeister have found that priming with money allows someone to withstand more physical pain, as measured by their tolerance for hot water. This tolerance for pain declined, however, after the subjects were reminded of how much they have recently spent. In the same experiments, counting currency owned by the experimenters reduced the pain of social rejection, but the pain got more intense after being reminded about their spending.

These results suggest "People would be feeling more pain," during the current meltdown, Vohs says.

The possibility that thoughts -- whether conscious or not -- about money can change behavior and attitudes has implications for tax and welfare policy, Vohs maintains. "The more the emphasis on money, I'd predict, the less people will endorse actions that take care of other people." Vohs has embarked on a study of how reminders about money will influence approval of the McCain and Obama tax plans.

Graph: the high money group asked for help less

Money talks! Experimental subjects spent more time trying to solve an insoluble problem after they had read a story related to lots of money.
Adapted from #1 (see bibliography).

If thoughts of money make us more isolated and less generous, it's easy enough to accept the adage, "Money is the root of all evil," but Vohs sees a contrary implication as well. Although the subjects "were less socially sensitive after being reminded of money," she stresses that they were also willing to work harder to achieve their goals. "Being self-directed, self-reliant, self-motivated can be a good thing."

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Terry Devitt, editor; Nathan Hebert, project assistant; S.V. Medaris, designer/illustrator; David Tenenbaum, feature writer; Amy Toburen, content development executive

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