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posted: 1/26/2014 5:00 AM

Study: Money is addictive

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  • New research finds that the more money people make, the more they value it.

      New research finds that the more money people make, the more they value it.

 
The Washington Post

WASHINGTON -- There's a fundamental principle in economics that applies to food, clothing and even all those shiny tech gadgets that start with the letter "i": The more of them we have, the less we value them.

But that may not be true when it comes to money. New research from Jeffrey Pfeffer, a professor at Stanford Graduate School of Business, and his colleagues at the University of Toronto and Renmin University of China finds that the more money people make, the more they value it.

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The research, published in the journal ILRReview, examined data from a longitudinal survey known as the British Household Panel Survey, as well the results from new experiments. Pfeffer and his colleagues calculated respondents' hourly income, as well as its growth over time, to separate money earned by actual work and money earned from other sources, such as investments. It then compared hourly earnings to respondents' views on how important it was to them to "have a lot of money."

"We thought it was quite possible that money was different because of its symbolic nature -- when I pay you, I'm also signaling your worth," Pfeffer says.

And that's what they found. The more that people earned, the more they said money mattered to them. The same correlation was not true when it came to money made from sources unrelated to work. That kind of income, Pfeffer says, has "much less implication for one's sense of mastery or worth."

Pfeffer says the research provides implications for how chief executives and other workers are paid. When it comes to motivating employees, he thinks it's a reminder for managers to emphasize -- instead of money -- the organization's mission. He recalls the story of a human resource executive who spoke to his Stanford class about how his software company didn't give stock options -- an idea that sounded like sacrilege in Silicon Valley. "He said, 'Look, a raise is only a raise for 30 days. After that, it's a salary.' "

Money, Pfeffer says, is like an addictive substance. It raises the bar and leaves people always wanting more. Leaders who focus on money as a reward, Pfeffer says, "are going to have to give more and more of it to have any motivational effect. You're getting people on some kind of treadmill."

When asked what his research tells us about how to get outsized CEO pay under control, Pfeffer references an answer he's provided in the past -- tax it at a higher rate, just like any other addictive substance.

While it's a comment he says he once made off the cuff, he doesn't appear to be joking. "What we've typically done with addictive substances like nicotine and gambling is tax them," he says. "Maybe this will fix some of the problem."

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