The Role Of Status in Markets

Abstract (Via UCLA)

This project tests for the effect of social status in a laboratory experimental market. We consider a special “box design” market in which a vertical overlap in supply and demand ensure that there are multiple equilibrium prices. We manipulate the relative social status of our subjects by awarding high status to a subset of the group based one of two procedures. In the first, a subject’s score on a trivia quiz determines his or her status; in another, subjects are assigned randomly to a higher-status or lower-status group. In both treatments we find that average prices are higher in markets where higher-status sellers face lowerstatus buyers, and lower when buyers have higher status than sellers. Across all sessions, the higher-status side of the market captures a greater share of the surplus, earning significantly more than their lowerstatus counterparts.

Introduction (Via UCLA)

This paper reports laboratory experiments that examine the effects of status in a market setting. We find that status appears to have a significant effect on prices and earnings, even when the assignment of status is completely random, and can be seen to be random by the subjects involved. These results suggest that status may have an important effect on market outcomes in situations in which status has real meaning.
A person’s status is a ranking in a hierarchy that is socially recognized and typically carries with it the expectation of entitlement to certain resources. There are many hierarchies within which a person might be ranked, from those based on specific skills or accomplishments that are only narrowly recognized, to more general societal rankings. In addition, different social groups may value hierarchies differently. Within a given social context, however, a person’s status entitles them to certain privileges, and affects the way they interact with others.1 Evidence of the value of status is the effort that is expended by people to attain status, a propensity noted by Adam Smith,2 deplored by Veblen (1926), and elaborated more recently by Frank and Cooke (1995). The concern with relative ranking is pervasive in virtually all societies. (Gil-White and Henrich (2000) provide examples.)

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19. October 2009 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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