Social Stratification: The Division You Shouldn’t Ignore

Years ago I was working for a large investment bank in London’s financial district. Upon coming to work one morning I found a survey doing the rounds through the office.  All the employees were requested to complete it. The survey only had a few questions, but one in particular caught my eye and piqued my interest. The question was, “What would you rather have, a better job title or more money?”

Which Life Would You Choose?

I recall reading about a survey done on a very similar topic a few years earlier. A number of survey participants across countries with huge wealth disparities were given a hypothetical example scenario and then asked to answer a question about the scenario. From memory the question posed was, “Which life would you choose?”

Option 1

You live in the United States, Europe or some other developed nation, and work as a janitor at McDonald’s or some other low income, low social status job. You get to be able to afford things like a mobile phone, LCD television, clean running water, electricity, housing, food (I guess you’d have to stay away from the food at work though to stay healthy), and you enjoy the “social status” that accompanies a janitor or other person on a low wage.

Option 2

You live in a country that falls into the emerging (although sometimes submerging) markets category. You live in the largest home in your village, relative to those in your environment. Your home may be built of mud bricks while those of the majority of the village are tin shacks. You have no access to clean running water or reliable electricity, and you do not earn enough to afford luxuries such as televisions or mobile phones. You are however the richest person in your village, you’re a doctor and deeply revered.  You command extraordinary respect and attention from those around you. When you speak everyone listens.

The Division Created By Society

I was reminded of these surveys and the results today when a friend asked to sound me out on the structuring of an investment deal he is involved in. The financier in the deal killed it after becoming aware of his percentage ownership in the company to be invested into relative to his colleagues.

Driven By Ego

I’ve seen this happen many, many times before. A good deal is only seen as a good deal on a relative basis. This gentleman did NOT kill the deal due to his relative percentage equity ownership. This is obvious since he originally agreed to it. He killed the deal due to his SOCIAL STATUS relative to others in the company. It was nothing to do with the return on capital that he had been offered and agreed upon, but rather what others were getting relative to him. Our minds are wired to benchmark against our peers.

Instinctive Competitiveness

Males especially are driven by competition, and often the relative result is seen to be more important than the absolute when viewed from this perspective. Did I beat that guy over there in the race?  Yeah that skinny runt looking guy, the emaciated old bugger, yeah that guy… What?  No I don’t care if I beat my personal record or not, it’s all about the other guy!

The Hierarchy

Tragically, this often plays out at the highest levels of government as well.  My boyhood home of Africa is a perfect example of a place where this is endemic.  Just recently Namibia’s Minister of Mines was spouting off about nationalisation of the mining industry.  It all boils down to who has what in the grand scheme of things.  Of course it’s more complicated than I suggest here, but at it’s root it’s the same phenomena that is occurring.

Biased Judgements Could Equate To Your Downfall

If I was asked my opinion on this matter it’s really simple, STOP doing this. It’s completely nuts! It matters diddly squat in absolute terms what car your neighbor drives, how many stock options your fellow colleague has received, or whether your title in your business is janitor or CEO. If you’re going to be a half decent investor you have to eliminate this completely dangerous instinct from your thinking. What matters is that your balance sheet and income statement grow. Stop worrying about what others do or don’t do, as it will lead to irrational and dangerous thinking, and consequently the resultant (damaging) actions.

Are we the only ones who have experienced this? Let us know in the comments section below.  And, if you think I’m right about this please share it with your friends.  Ideas are powerful, and sharing the good ones is worthwhile…

Chris

“Attention is the way social primates measure status. It is highly rewarding because it causes the release of brain chemicals such as dopamine and endorphins.” – Keith Henson

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drsam
10 years ago

Interesting post.

I think Warren Buffet touches on this phenomenon when he talks about the need for a person to have “An inner scorecard” and not worry about what others think of you or how you compare to them.

Jesus also addresses this human trait in Mathew 20:1-16, which is the parable about the workers in the vineyard.

Human emotions such as a need to benchmark one’s self against others are powerful indeed and can lead to very irrational behavior.

By the way, I’m enjoying your blog immensely. I found my way to it via a link on Kuppy’s website…another blog I enjoy immensely.

I did not grow up in an environment where I got a good education in investing, etc., so I’m trying to self-educate as much as possible. I only wish the internet and blogs such as yours were around back when I was in my late teens/early twenties, so I could have gotten into this game a couple decades earlier. Oh well, better late than never I reckon.

Cheers,

Sam