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Essays in Social Status and Finance


The field of household finance has established a correlation between savings behavior and education, income, and race. This is partly explained by a high discount rate ultimately leading to low social status. Chapter 1 establishes causation in the opposite direction, with a relatively low social status position leading to a relatively high discount rate. The method used is experimental, with 154 subjects interacting in high- or low-status assignments. The subsequent change in intertemporal preference is significantly determined by the status assignment. The effect is strongest among the subjects who initially have higher discount rates and does not depend on the sex of the subject. This result implies low status consumers have higher discount rates and make worse financial choices because of their low social status, a finding that must be addressed in the regulation of consumer financial products.

The evolution of uniquely exaggerated traits in humans is a topic that generates considerable interest and debate. In Chapter 2 I present an integrated theory that is based on the relationship between the individual and the group. This relationship involves diverse incentives---rewards and punishments---being applied by societies to their members, creating an evolutionary force. While the implications of direct incentives have been considered previously, I propose an indirect and potentially far more powerful incentive: social status. Through the awarding and withholding of social status, societies favor diverse psychological and morphological traits including intelligence, knowledge, norm-following, language ability, singing ability, and altruism towards one's group. Social status grants individuals proximate benefits in social interactions and ultimate benefits in inclusive fitness, at least in pre-industrial societies. Hence social status acts as a social incentive and is a component of a wider evolutionary force that I term prosocial selection. In discussing the social bases of prosocial selection, I highlight both the desire of group members to have incentive systems that benefit themselves, and group selection, here the selection of groups with fitter incentive systems. In discussing the psychological bases of prosocial selection, I highlight genetic predisposition, behavioral conditioning, awareness of intrinsic incentives, and awareness of social incentives. Finally, I discuss the altruism generated through prosocial selection, termed social altruism, and contrast it with established theories of altruism. As a coherent theory of the evolution of many human behaviors, prosocial selection requires a considered debate.

Why are low-income households less likely to save than high-income households? In Chapter 3, I argue the cross-sectional relationship is explained by low status consumers being more impulsive. Formal tests using the Survey of Consumer Finances support this Status and Impulsiveness Hypothesis, while the Permanent Income Hypothesis and the Life Cycle Hypothesis are not supported. A decomposition of income allows me to determine the relative contributions of the different hypotheses towards the Income-Savings relationship: the SIH explains 85%; the PIH 14%; and the LCH 1%.

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