[link] The Economics of Social Status


Discusses a number of aspects of social status, including the "social status as currency" concept that Morendil and I previously wrote about.

Now we get to the really interesting stuff: the economic properties of social status.

Let’s start with transactions, since they form the basis of an economy. Status is part of our system for competing over scarce resources, so it should be no surprise that it participates in so many of our daily transactions. Some examples:

  • We trade status for favors (and vice versa). This is so common you might not even realize it, but even the simple act of saying “please” and “thank you” accords a nominal amount of status to the person doing the favor. The fact that status is at stake in these transactions becomes clear when the pleasantries are withheld, which we often interpret as an insult (i.e., a threat to our status).
  • An apology is a ritual lowering of one’s status to compensate for a (real or perceived) affront. As with gratitude, withholding an apology is perceived as an insult.
  • We trade status for information (and vice versa). This is one component of “powertalk,” as illustrated in the Gervais Principle series.
  • We trade status for sex (and vice versa), which often goes by the name “seduction.” Sometimes even the institution of marriage functions as a sex-for-status transaction. Dowries illustrate this principle by working against it — they reinforce class/caste systems by making it harder for high-status men to marry low-status women.
  • We reward employees in the form of institutionalized status (titles, promotions, parking spots), which trade off against salary as a form of compensation.
  • We can turn money into status by means of conspicuous consumption, or status into money by means of endorsement (i.e., being paid to lend status to an endeavor).

But the part that I found the most interesting was the idea of defining communities via their status standards:

Previously we defined status with respect to a community, but we could also flip it around:

A community is a group of people who agree on how to measure status among their members.

In other words, it’s a group of people who share a common status currency. Silicon Valley, for example, is a community oriented around a particular way of measuring status — the ability to influence the growth of engineering companies. But Silicon-Valley status won’t buy you anything in Hollywood — unless you convert it to something that makes sense in the Hollywood economy. (Financial wealth usually does the trick).

This definition allows us not only to draw boundaries between communities (porous and fuzzy though they may be), but also allows us to discuss the strength of a community, i.e., the level of agreement about how to measure status. Google, for example, is a fairly strong community insofar as Googlers agree on how to measure status among themselves, but Google engineering might be an even stronger community.

Treating communities as “status-currency blocs” helps explain how there’s relatively free trade (at low transaction costs) within the community — and also how trade is distorted across community boundaries. The fluctuating ‘exchange rates’ and asymmetric information make cross-community interaction more difficult. When a Google VP walks into a meeting with some employees from Facebook, say, everyone will be unsure about their relative statuses, and the group will have to spend time and effort (and a lot of posturing) in order to figure it out.

The “currency bloc” metaphor also helps explain both the benefits and the costs of institutional re-orgs. Merging two organizations, for example, can increase economic efficiency (by standardizing on a single status currency and thereby facilitating more interaction/trade), but the integration will also require some ‘repricing’ — with resistance from everyone who loses out.

The article has a lot more.

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Some groups really are much less hierarchical than others, though. Think kids in middle school/high school at one end of the continuum and flat-structured silicon valley startups at the other end. (Paul Graham: "I never had to manage anyone in our startup, even though I was the president. The other hackers were my peers, and would have given me the raspberry if I'd tried to "manage" them. We operated by consensus.")

Maybe as you get to be Google/Facebook-sized there's more pressure for hierarchy to develop?

I found myself disagreeing with a lot in the article.

For example, he defines status as social influence, then interprets a number of things as a loss of status, while in fact they are means of increasing influence. The most clear example is an apology. An apology can increase your influence. More generally, acting submissive to someone can greatly increase your influence over them.

A community is a group of people who agree on how to measure status among their members.

That is a useful idea, though I'd tweak it a little. Define a community by some shared set of measures of social status, but don't claim a comprehensive consistency on social status between members. I go social dancing a lot. Dancing well increases your social status. We share that in common. But we all certainly don't agree on a comprehensive measure of social status.

Great article. Money is a sort of distilled modern extension to social status that lets us cooperate with complete strangers by assigning them an "effective status". Something like money is neccesary when the social graphs become very sparse, because we otherwise won't know how much to cooperate with our (largely unknown) neighbors.

A thought: Think of the relative influence of money and social status as an exchange rate. The less connected a social structure is, the more status ambiguity, and the greater the relative influence of money?