Behavioral Economics: Money Isn’t Everything

Until recently, economists asserted that utility could be measured by material possessions. That is, the more we consume, the more we enjoy. This approach has led to our current state, in which the attainment of money is the ultimate gauge of success.

According to this approach, man is a rational being—a key concept in economics. A rational person will weigh all the options and finally choose the most rewarding in terms of material resources, money, or products that can be measured monetarily. Thus, we have developed a societal view that money provides a gauge with which to measure a person.

However, researchers in behavioral economics have shown that people take many other elements into account besides money when making decisions. One such example can be found in a well-known experiment in behavioral economics, called the “Ultimatum Game.” [83] In this experiment, two participants must share a sum of money between them, say 100 dollars. The first participant offers the second one part of the sum, and if the second participant agrees, they divide the money accordingly. If not, neither gets a penny.

If, indeed, money were the only element taken into account, the second participant would have agreed to receive whatever was offered, even one dollar, while the other party received the rest, since the receiver would have had one dollar more than before. However, in many cases, the participants agreed only on equal distribution, and were willing to relinquish much more than one dollar if they felt that the initial offer was unjust.

[83] http://en.wikipedia.org/wiki/Ultimatum_game