Love 'em or hate 'em, the synth band Depeche Mode demonstrated an instinctual understanding of human nature with "Everything Counts In Large Amounts," their 1983 hit song about the pleasure of big payouts. Their conclusions have been verified by a recent study at the University of Bonn, where researchers there and at the California Institute of Technology discovered that large amounts count so much with people that they prefer pay raises with inflation over pay cuts with stable prices — even when the two scenarios are financially identical.
The experiment involved giving simple mental tasks to 24 subjects. While the subjects were being tested, their brains were scanned to learn which areas were the most active. Test subjects who correctly solved the problems were awarded a certain amount of cash. However, subjects could only spend the cash on items offered in a catalog (which included CDs, computer accessories, suntan lotion, etc.). Then, researchers re-ran the test, but this time they awarded cash payments that were 50 percent higher. However, the prices of the catalog items were also 50 percent more expensive.
The result was that the purchasing power of the money in both tests was identical, but the brain activity of the subjects was anything but identical. "In the low-wage scenario there was one particular area of the brain
which was always significantly less active than in the high-wage
scenario," said Bernd Weber, one of the researchers. "In this
case, it was the so-called ventro-medial prefrontal cortex — the area
which produces the sense of quasi elation associated with pleasurable
experiences." It's important to note that the test subjects were told in advance that the second test would involve bigger cash payments, with equally bigger price tags. Nevertheless, their pleasure centers burned more brightly during the second test.
The upshot regarding this "money illusion" is that national fiscal policy is at least as much about psychological manipulation as it is about fixing broken financial institutions. If you're lucky enough to get a raise in the coming months, remember that your new "larger amount" might not be as big as your ventro-medial prefrontal cortex is telling you.
Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.
Mark Frauenfelder Credit.com contributor, editor-in-chief of MAKE magazine and the founder of the popular site Boing Boing, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online. He covers creative DIY projects and how-tos that will help you make the most of your money.
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