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© 2009 American Psychological Association 1089-2680/09/$12.00 DOI: 10.1037/a0014225
An Exchange Theory of Money and Self-Esteem in Decision Making
This article addresses the relationship between money and self-esteem, both of which human beings desire. Money is used to purchase products. It may also indicate its owner’s competence. Self-esteem is the subjective evaluation of the self, and people want to maintain their good self-image. The exchange between money and self-esteem may follow 3 principles: augmentation, substitution, and competition. A superior payoff augments utility of self-esteem. Money and self-esteem partially compensate for one another when an option contains an abundance of one type of utility and lacks the other. Money and self-esteem compete against each other when decision makers have to choose between the two. Empirical evidence has shown that meaning of money, situational need for money, self-esteem boost, and ego threat inﬂuence the exchange between money and self-esteem. The theory presented in this article bridges research in psychology and ﬁndings in economics and provides an integrative perspective on understanding human decision making. Keywords: money, self-esteem, utility, exchange, decision making
People die for money, and birds die for food.— old Chinese saying I must not be a failure, is the very loudest of the voices that clamor in each of our breasts: let fail who may, I at least must succeed. —William James (1890, p. 303)
People spend much effort in pursuing ﬁnancial beneﬁts. Money is essential in fulﬁlling fundamental human needs, such as feeding and sheltering (Maslow, 1943, 1971). People want to maintain their self-esteem (Baumeister, 1998; Crocker & Park, 2004; Greenwald, 1980; W. James, 1890; Steele, 1988; Taylor & Brown, 1988), and self-esteem is a crucial human motivation shaped by culture (Baumeister, 1987, 2005; James, 1890). The theory presented here addresses the relationship between money and selfesteem. Speciﬁcally, I propose three exchange principles: augmentation, substitution, and competition. Understanding the exchange between money and self-esteem may have important implications for research on the self and the study of decision making. From the view of research on the self, the connection between money and self-esteem contributes to understanding the function of self-esteem. Social psychology has accumulated ample evidence that people want self-esteem (Baumeister, 1998; Crocker & Park, 2004; Greenwald, 1980; Steele, 1988; Taylor & Brown, 1988). People hold a variety of cognitive biases to maintain their positive self-image. They usually believe that they are above average in intelligence, morality, and generosity. Exchange theory explores the ﬁnancial expenses in seeking self-esteem. One key component of self-esteem is competence, and earning money may be an important domain for people to prove their competence. The augmentation effect shows that a high monetary payoff may have positive implications for the receiver’s self-image. The substitute effect suggests that money and self-esteem partially compensate for one another because both produce satisfaction for
human beings. The competition effect illustrates people’s choices when their desire for self-esteem confronts their longing for money. Therefore, understanding the relationship between money and self-esteem may enrich theories on the sources of self-esteem, the ﬂexibility of satisfying self-esteem, and the importance of self-esteem in the human motivation hierarchy. From the perspective of research on decision making, the exchange between money and self-esteem explains violations of money maximization. The motivation to pursue ﬁnancial beneﬁts explains many aspects of human behavior. Individuals, organizations, and nations tend to make explicit plans to achieve economic payoffs. In fact, standard economic theories often assume that money maximization is the benchmark of rational decisions. However, people behave in ways that run counter to the goal of maximizing money. Investors keep investing in losing projects that have produced negative economic returns, resulting in accumulated losses (Bazerman, Giuliano & Appelman, 1984; Brockner & Rubin, 1985; Staw, 1976, 1981; Teger, 1980; Zhang & Baumeister, 2006). People give money to anonymous others whom they have little chance of meeting in the future (Batson, 1987, 1991; Eckel & Grossman, 1996; Krebs, 1970). Negotiators would rather end the negotiation and gain nothing than accept an offending but proﬁtable offer (Fisher & Ury, 1991; Guth, 1995; Roth, 1995; Thaler, 1988; Zhang, 2008; Zhang & ¨ Baumeister, 2008). The exchange between money and self-esteem suggests that people may sacriﬁce money to defend their self-esteem. Most important, the present theory builds connections between money, emphasized in economics, and self-esteem, studied extensively in psychology. The association between the two apparently different types of utility may facilitate an integrative approach in investigating decision making.
The Exchange Basis and Principles
People desire monetary beneﬁts, and they want to maintain their positive self-image. The fact that people may attain satisfaction from either money or self-esteem constitutes their crucial exchange basis. Money may imply a person’s competence. Money’s symbolic meaning connects it with self-esteem. The exchange
Liqing Zhang, Department of Psychology, Peking University, Beijing. Correspondence concerning this article should be addressed to Liqing Zhang, Department of Psychology, Peking University, Beijing, People’s Republic of China, 100871. E-mail: firstname.lastname@example.org
Research in psychology has suggested that self-esteem is an important type of utility in decision making. sublimation. 2006). Steele. 2004. 1890). However. Self-Esteem as Utility Self-esteem is a person’s subjective evaluation of the self. selfesteem has been excluded by the mainstream of economics. Even though defense mecha- nisms were originally proposed to reconcile conﬂicts between the id (mainly sexual desire) and the superego (internalized morality). 1976. First. The idea that self-esteem is an important type of utility is echoed in the early development of economics. substitution. have argued that people value pride and derive pleasure from positive information about the self. Utility of self-esteem does not feed a hungry person. 1988. The augmentation effect explores when money implicates positive or negative indications to the receiver’s self-image. substitution. and it carries positive or negative information to the receiver’s self-concept (Walster. including personal attributes. The idea that money is the substitute of utility dominates. unlike the ﬂourish of research on self-esteem in psychology in the past century. Utility In decision making. 2008). Greenwald. 1988). & Sommer. and enhance favorable views of the self (Baumeister. W. 2002). Recently. 1980. The competition effect addresses the choice between money and self-esteem. Both serve as utility in decision making. Ryan & Brown. The idea that self-esteem may represent an essential type of utility is rooted in classic articles in psychology. 1988). One of Sigmund Freud’s disciples. 1964. 2000). 1999). such as those written by Bentham (1789/1907) and Smith (1759/1976). Crocker & Park. Crocker & Park. 1988. Freud initiated the classic work on defense mechanisms. 1998. Martin. Recent research beyond behaviorism has demonstrated that praise may promote self-choice behavior and enhance interest in a task because compliments indicate positive information about the self (Deci. 1957). Tesser. 1937. 1988. People desire both money and self-esteem. Berscheid. 1970). Money as Utility Money serves as a standard of value and functions as a store of value. 1980. displacement. William James. Substitution. they generally agree that people want to maintain their positive self-image. Taylor & Brown. isolation. it proposes the relationship between the two types of utility—money and self-esteem—in decision making. 2003). S. utility refers to the usefulness or satisfaction that people obtain from an option (Bentham. 1789/1907). Lea & Webley. Alfred Adler. Steele. emphasized the importance of self-love in shaping human behavior (W. Seminal essays. maintain. & Walster. including reaction formation. Self-esteem may be needed because it signals social acceptance (Baumeister & Leary. families. undoing. and it may symbolize its owner’s competence. Greenberg. Loewenstein. devoted much of his work to understanding how people strive to achieve accomplishments to compensate for their weaknesses (Adler. and competition. Greenwald. projection. In clinical psychology. shelter. be exchanged with each other? Underlying the obvious distinctions are crucial connections. and it indicates a person’s competence in providing a comfortable life for him. Henderlong & Lepper. want. 1890.MONEY AND SELF-ESTEEM IN DECISION MAKING 67 between money and self-esteem involves augmentation. Solomon. 2006. and possessions. and reproduction. and Competition The exchange principles between money and self-esteem may include augmentation. Arndt. The present theory contributes to this emerging ﬁeld by bridging the relevant research in psychology and the ﬁndings in economics. Augmentation. 2004). checks. they were later viewed as mechanisms to protect a positive selfimage (Baumeister. Money and self-esteem are not completely fungible because each has its irreplaceable functions. defends against death anxiety (Pyszczynski. 1998. 1993). 1999. Taylor & Brown. & Cornell. Money has an instrumental function in purchasing products. This line of research suggests that self-esteem derived from praise has similar instrumental functioning in motivating human behavior as do material rewards. Freud. and this builds their crucial . 2000. Leary & Baumeister. and denial (A. People are motivated to defend. 1944). 2004. James (1890) argued that people endow anything associated with the self. 1997. and credit. 1925–1926/1961). McGrade. The utility nature of money and self-esteem establishes their exchange basis. & Schimel. with particularly positive evaluations. The substitution effect emphasizes the degree to which monetary utility and utility of self-esteem can compensate for one another. Freud. or involves actively pursuing competence and meanings of life (Deci & Ryan. James. 1998. 1995. In standard economic theories. The symbolic meaning of money builds connection between money and self-esteem. Zhang. money and self-esteem are both things that people need. 1966. which is extended to research on consumer behavior (Belk. money and selfesteem. Money usually consists in the form of common currencies in transactions. it is often labeled disutility. Koestner. 1988). and competition. such as cash. money is usually used to substitute for utility (von Neumann & Morgenstern. 1996). Even though researchers disagree on why people need self-esteem. Money is endowed with symbolic meaning by human culture (Lea & Webley. and more important.or herself and his or her family (Prince. Dale. The pioneer of the functionalism tradition in psychology. Research has suggested that people develop diverse strategies to protect their positive self-concept. The fulﬁllment of self-esteem may constitute an important type of utility. Summary How can the two apparently different things. James’s ideas on the self spurred important research in social psychology (Baumeister. Spear. Money does not restore the selfesteem of people who derive their self-worth from morality. Money allocated by others may indicate a person’s standing in the group. W. If an outcome produces dissatisfaction or reduction in utility. It is needed to satisfy basic human needs such as food. Research on new behaviorism has shown that praise may serve as an effective reinforcement in shaping desirable behavior (Kennedy & Willcutt. such as attributing success to the self and failure to external factors (Taylor & Brown. White. and work to attain. & Ryan. James. 1924). the importance of self-esteem in economics has regained attention (Koszegi.
They perceive disutility of self-esteem if their pay is below the reference point. such as wage rank. MacCulloch. 1981). 2001. 2002). Children may study because of their intrinsic motivation. Therefore. the meaning of money shapes people’s satisfaction. the more money the wife earns.. 1985. even after people’s income is controlled for (Clark & Oswald. If they receive money for the time spent in studying. and framing inﬂuence the utility of self-esteem implicated in a payoff. it addresses how money may augment utility of self-esteem. People get more satisfaction from money they earn than from unemployment compensation (Clark & Oswald. Individual aspiration may serve as a reference point. The symbolic meaning of money connects ﬁnancial outcomes with self-esteem. when the man’s wife brings home more money than he does. White. It can be inferred that a man may enjoy the utility derived from his wife’s income as long as he remains the major breadwinner. The wife’s income adds wealth to the household and provides additional money to purchase consumption goods. & Redley. and competition. James. 1994. Earning money to support a family is an important domain for men to demonstrate their self-worth. Longitudinal ﬁeld studies have demonstrated that people’s satisfaction with income is negatively associated with the average income of their colleagues or neighbors. 1992). 1973). but it also threatens their perception of self-worth. Frey & Stutzer. 2000. The augmentation effect suggests that the total utility derived from money may include the satisfaction stemming from the usefulness of the money and the satisfaction derived from its implications to the receiver’s self-esteem. 1999. Di Tella et al. Framing may involve altering reference points. money may signify the its owner’s competence. 2005). The augmentation effect explores how source of money. 2004. the source of money may inﬂuence its utility of self-esteem and its total utility. 1994. The utility of pay is not only derived from its purchasing power. 1992. Source of Money The source of money may produce utility or disutility of self-esteem. The technique of framing may apply to distribution of pay in organizations. 2000. information to the receiver’s self-image. when the amount of money is held constant. Speciﬁcally. usually has a stronger effect on happiness than does absolute income (Blanchﬂower & Oswald. Money and self-esteem may partly substitute for one another because the two types of utility share common components of satisfying human desires. If employers have to cut employees’ wages. Losing a job not only precludes people from earning a salary. the utility nature of both money and self-esteem and the symbolic meaning of money constitute their exchange basis. 1996. 1997). Darity & Goldsmith. Frey & Stutzer. 2001. women sometimes withdraw from the labor force to avoid becoming the superior breadwinner in their household when their husbands are unemployed (S. reference points. This prediction runs counter to ﬁnancial rationality. Oswald. the exchange between money and self-esteem involves augmentation. However. & Smith. Reference Points Reference points may inﬂuence whether money implies positive or negative information to the receivers’ self-concept. lowering reference points may promote the utility of self-esteem implicated in a ﬁxed amount of money.68 ZHANG connection. Lucas. However. In the literature on income and happiness. Therefore. In other words. Diener. Unemployment compensation implicates negative information to the receivers’ selfconcept. This is possibly because comparative income often inﬂuences self-esteem to a larger degree than does absolute income. 1988). even after their absolute income is controlled for (Brown. Luttmer. Research has shown that the source of money inﬂuences its meaning. 1996. Social comparison is an important reference point. Money and self-esteem compete against each other in a choice setting because each has its unique functions. Suh. monetary rewards do not undermine intrinsic motivation when it is made clear that the rewards indicate the receivers’ competence (Deci & Ryan. they may frame it as a sacriﬁce for the company’s long-term development to avoid its negative implications to the employee’s competence. their intrinsic motivation may weaken. According to standard economic theories.esteem. Clark & Oswald. 1973. & Oswald. and the disutility of self-esteem reduces the satisfaction derived from the compensations. Lepper. Framing Framing may strengthen or weaken the augmentation between money and self. 2002). comparative income. Gardner. However. People usually feel good about themselves if they perform better than others (Festinger. A superior salary may provide positive . Jordan. 1985. Easterlin. People attain utility of self-esteem if their pay is higher than the reference point. 1959). 2001. Self-esteem may be bolstered by the improvement of one’s ﬁnancial situation. Field research has shown that unemployment damages life satisfaction. 1997). When money is withdrawn. Experimental studies have shown that people gain more satisfaction from their pay if they think of others’ inferior payoffs than if they compare it with superior outcomes (Lyubomirsky & Ross. 2008). and their self-esteem is challenged when their spouses take up the responsibility (Tesser. & Qian. Second. James. Oswald. Jordan. Greene. & Nisbett. it can also stem from what it signiﬁes. Augmentation Effect The augmentation effect refers to the principle that one type of utility may enlarge the other type of utility. Kay. substitution. 1954. The augmentation effect suggests that a man may be dissatisﬁed when his spouse earns more money than he does. Research has demonstrated that money often crowds out intrinsic motivation (Deci & Ryan. Darity & Goldsmith. 2005. Dissociating competence from money may reduce the disutility of self-esteem implicated in a low salary. Wills. Money may augment self-esteem because a high payoff indicates a person’s competence. Di Tella. Therefore. the more content the husband should be. 1996. his wife’s high income may threaten his perception of competence (Zhang. & Redley. they may not want to study anymore. Money may imply positive or negative information about its owner’s self-image. Therefore. 1995.
and the pleasure gained from positive evaluation of the self may somewhat compensate for the scarcity of monetary beneﬁts. the capacity to make a fortune does not compensate for failure to follow ethical rules. The competition effect addresses how the amount of utility of self-esteem at stake. Tang. need for money inﬂuences the degree of substitution between money and selfesteem. Zhang & Baumeister. The utility gained from positive information about the self may be less likely to compensate for the shortage of economic beneﬁts for people who value money desperately than for individuals who do not care much about it. The substitution effect addresses how situational need for money. or being inﬂuential in a historical event of the company (Shamir et al. A superior income generates utility of self-esteem. 1984.g. & Arthur. reference points. and framing shape the utility of self-esteem implicated in a payoff. Arthur. 1994). If . Shamir. Competition Effect The competition effect operates when people choose between money and self-esteem. situational need for money. Staw. Yamauchi & Templer. individual differences. In standard economic theories. Unemployment compensation produces disutility of self-esteem. even when their pay remains the same (Shamir. withdrawal is often considered to indicate a negative personality trait (Simonson & Nye. but jackpot money does not. In companies. The conﬂict is a consequence of the distinctive features of each type of utility.MONEY AND SELF-ESTEEM IN DECISION MAKING 69 Summary Money may imply positive or negative information to the receiver’s self-concept. & House. However. feelings of self-worth improve employees’ satisfaction with their jobs.. people derive self-esteem from morality. Spear. Substitution Effect The substitution effect refers to the principle that the abundance of one type of utility may make up for the lack of another type of utility. Research has suggested that some people want money more badly than do others (Furnham. self-esteem boost and ego threat) shape people’s decisions between money and self-esteem. Individual Differences Individual differences in desire for money may inﬂuence the degree to which utility of self-esteem is able to substitute for ﬁnancial utility. one type of utility may substitute for the other type. 1964. Therefore. The abundance of money may compensate for the lack of direct indicators of self-worth. 1966. 2006). Staw & Ross. Amount of Utility of Self-Esteem at Stake Research has shown that people may repeatedly invest in losing projects to defend their self-esteem. If people can be content with any kind of satisfaction. Earned money implies people’s competence. 1976. 1993). earned money may be more likely to substitute for utility of self-esteem than money gained from a lottery. individual differences. decision makers are more likely to invest in a previously chosen project than to put money in a new project (Brockner & Rubin. Money is more likely to compensate for the lack of utility of self-esteem for people who value the ability to earn money than for individuals who derive their self-worth from morality. Praise is enough for children because they rely on their parents for life’s necessities. Therefore. Framing alters the meaning of money. Skillfully framing a payment increases its utility of self-esteem. Research has shown that source of money. and meaning of money inﬂuence the degree to which money and self-esteem compensate for one another. The degree to which pay is able to substitute for utility of self-esteem may depend on how people value their competence in earning money. Thus.. and situational need for self-esteem (e. individual differences. As discussed in the Augmentation Effect section. Summary Money and self-esteem partly compensate for one another. 1982). Money may be more likely to substitute for utility of self-esteem for people whose self-worth is contingent on the ability to earn money than for individuals whose positive self-image is mainly derived from virtues. 1995. People continue investing in their failing projects because they do not want to admit that their original investment decision was unwise (Zhang & Baumeister. 1985. 1994. McGrade. 1970). Utility of self-esteem may be derived from afﬁliating with a valuable group. Some people derive their self-esteem from domains that have little to do with the ability to make money. praise is effective in shaping children’s behavior in the absence of material rewards (Kennedy & Willcutt. 1981. the quantity of money. Financial utility is able to compensate for utility of self-esteem in part because pay may indicate its owner’s competence. people throw good money into losing projects to obtain the utility of self-esteem. 1980. 1992. the source of money may inﬂuence its meaning. Situational Need for Money The utility of self-esteem may partly compensate for the lack of money when people have already attained the money necessary for their survival. House. Furthermore. 2006). Source of money. and situational need for money shape the degree of substitution. In education. Earned money is more likely to make up for utility of self-esteem than is jackpot money. being respected as an important member. Utility of self-esteem cannot be employees’ only reward because they need a salary to support their families. Meaning of Money The meaning of money may inﬂuence the degree to which money can substitute for self-esteem. Teger. Utility of self-esteem somewhat makes up for shortage of pay if people have obtained money to purchase necessities for their survival. The substitution is incomplete because each type of utility has its unique characteristics. investors should not take forgone investment (or sunk cost) into consideration when they decide on current investments because they should only consider their future beneﬁts. and feelings of competence contribute to self-esteem. Utility is essentially the satisfaction that people gain from an option. 1987).
but it may change their implications to the receivers’ self-concept. additional insulting information delivered with a small offer may increase the disutility of self-esteem carried by the offer. 1988). the money is allocated according to the offer. There are two players in the game. not only the level of self-esteem matters. & Koput. Thaler. such as appearance and academic accomplishment. according to standard economic theories. it makes people more likely to decline the offer.” the responder has to choose between accepting the monetary beneﬁt and defending his or her dignity because the low offer is economically proﬁtable but psychologically insulting (Thaler. people are able to stop investing in a losing project when they are told that experts. Henrich et al. Barsade. 1995). Second. Steele. A computer does not intend to offend negotiators. New managers did not make the original bad decision to make the loans and thus are able to terminate the problem loans without any cost to their selfesteem. stability of self-esteem. Research has also suggested that self-esteem contingent on certain domains. people do not need to sacriﬁce money to maintain their self-esteem when withdrawal is devoid of negative implications to the self. Negotiators are more likely to reject a low offer if the offer is given together with an offending note saying. but it increases the offer’s disutility of self-esteem. The insulting note does not alter the offer’s monetary payoff. self-esteem is more at stake when the withdrawal means failure in an important domain than when the withdrawal indicates failure in a trivial domain. and narcissism. Therefore. First. 2002). Research has shown that people are more likely to continue a ﬁnancially losing project when the project is diagnostic in assessing intelligence (or social competence) than when the task is not diagnostic in judging any important ability (Brockner et al. although a portion of participants turn down high stakes (Munier & Zaharia. Larrick. Research has shown that negotiators may turn down proﬁtable offers to defend their dignity. research has demonstrated that people with high trait self-esteem have more available resources to ensure their positive self-image than do those with low trait self-esteem (Josephs. Zhang. may inﬂuence the choice between money and selfesteem. and the responder decides whether to accept or reject the offer. it produces disutility of self-esteem to terminate a previously chosen course of action. 1992. such as religion (Crocker & Park. 1995. Third. The ultimatum game is a negotiation game widely used in the research on decision making (Guth. There is inconsistent evidence on whether people with high or low self-esteem are more defensive.. Therefore. Therefore. contingency of self-esteem. people put more money into a project when they initially choose it than when someone else does (Staw. Future research should clarify which of the following processes drives the transition from choosing self-esteem to taking money. People frequently decline insulting but proﬁtable offers in the ultimatum game. Zhang & Baumeister. 2004). research has shown that people with high trait self-esteem care more about their positive self-image than do those with low trait self-esteem (Baumeister. Future empirical tests of these questions may advance the understanding of the boundary conditions under which decision makers choose money or self-esteem. a large amount of money is more useful in purchasing material goods than is a small amount. Therefore. 1995. Amount of Monetary Utility at Stake People may tend to take money at the expense of self-esteem as the monetary value becomes large (Munier & Zaharia. First. 1992). 1988). 1988.70 ZHANG The amount of utility of self-esteem at stake promotes costly entrapment. Thaler. 1996. 1982. 2008). 1997). 2008). If the responder receives an offer from the proposer saying. Swann & Read. By paying participants according to their decisions. On one hand. ¨ The presentation of a low offer may inﬂuence the amount of disutility of self-esteem implicated in the offer and alter people’s choices between money and self-esteem (Blount. people suffer more psychological distress and endure more physical symptoms when they fail in personally important domains than when they fail in unimportant domains (Crocker & Wolfe. 1988. Thus. & Schwarze. people with high trait self-esteem usually evaluate themselves more positively than those with low trait self-esteem. 1992). 2008). such as trait selfesteem. the domain in which . The proposer makes an offer on how to divide the money. Zhang. but also the stability of self-esteem inﬂuences responses to ego threat (Bushman & Baumeister. On the other hand. & Boden. 1992). 2002. 2001). & Nisbett. people should only care about the absolute amount of money and neglect the relative amount of money. The absolute amount of money may also inﬂuence negotiators’ choices. Zhang & Baumeister. 1995). Kravitz & Gunto. negotiators are more likely to accept a low offer when the offer is randomly generated by a computer program than when it is proposed by a negotiating partner (Blount. 2005. Schmittberger. ¨ Guth. will evaluate their choices (Simonson & Nye. 1998. is more fragile than self-esteem contingent on other domains. However. ¨ Roth. 1995. 2008. especially if the offers are lower than 20% or 30% of the sum (Guth. Second. “I know you’d like more. Actually. The method of generation offers does not alter their ﬁnancial beneﬁts. 1995. but that’s the way it goes” than if the offer does not contain the note (Kravitz & Gunto. “I’m going to keep 99% of the beneﬁt and give you 1%. 1981). Second. who think highly of them if they ignore their foregone cost and avoid entrapment. people usually think that withdrawal indicates a negative personality characteristic (Staw & Ross. First. First. People with high and unstable self-esteem are especially defensive. research has demonstrated that responders in the ultimatum game are more willing to accept a proportionally low offer when the sum is large than when the sum is small. Steele. Third. Second. neither player receives anything. Field studies have demonstrated that the turnover of senior bank managers reduces the bank’s additional commitment to problem loans (Staw. the meaning of money may change from insulting to ﬂattering as the amount of money increases. They may be more likely to protect their self-esteem at the expense of money than those with high and stable self-esteem. so small offers generated by a computer do not arouse the responders’ desire to defend their self-esteem. 1987). 1976). If the responder accepts the offer. In the experiments based on the ultimatum game. the small offer is often deﬁned by the ratio between the offer and the total amount. Individual and Cultural Differences in Self-Esteem Dispositional differences in self-esteem. Kernis & Waschull. people’s self-esteem is more involved in a losing project if they themselves decide on the original investment than if others do. a proposer and a responder. Smart. 1986). The two players divide a ﬁxed sum of money.. If the responder rejects the offer.
are less motivated to maintain their positive self-image than those in Western cultures. Participants thus faced a choice: withdrawal or continuation of investment. 1988). Shubik. 1985. Recent research has suggested that people in Japan may self-enhance in domains that are important to their self-concept. In the ultimatum game. Ego threat. such as the United States and Canada (Heine. 2008). Some research has suggested that people in Eastern cultures. 1971. people may in certain situations choose money at the expense of self-esteem. For instance. it may indicate that money conquers self-esteem in this decision (Thaler. if the responder accepts the low offer. Fourth. and thus they are more willing to sacriﬁce money in exchange for utility of self-esteem. Therefore. For instance. They then received feedback that their original investment was foregone and that they did not win their goal of ﬁnancial beneﬁts. participants ﬁrst chose to invest a small amount of money into a project. Self-afﬁrmation reduces ego defensiveness (Cohen. when Schmitt and Allik (2005) administered the Rosenberg Self-Esteem Scale to people in 53 nations. and the experimenter has to stop the players from submitting much higher prices (Teger. when the bid rises to more than $1. people with high trait narcissism may be more likely to choose self-esteem over money than those with low trait narcissism. 1980). 1999). 1988.. The player who offers the second highest bid also pays his or her claimed bid. Aronson. Shubik. ego threat and self-esteem boost may change people’s choices between money and self-esteem. 1980). 1980. & Steele. 1996. it becomes economically irrational. contingency of self-esteem. 1998. Situational Need for Self-Esteem Ego threat and self-esteem boost alter people’s need for selfesteem. & Kitayama. Steele. People guard their positive self-image after their selfesteem is challenged (Baumeister. it follows economic rationality to buy a dollar with less money. Zhang & Baumeister. Zhang. When a player’s bid is below $1. 2001). Thus. Thus.. 2000. stability of self-esteem. When their positive self-image is threatened. people may choose money at . it is important for future empirical research to test how cross-cultural differences in need for self-esteem and in desire for money alter the choice between money and self-esteem. In addition to the ample research and hot debates on cultural differences in social psychology. Therefore. Steele. 1996. In the dollar auction game. 2006. Baumeister et al. and narcissism inﬂuence people’s choices between money and self-esteem. However. Sedikides. The dollar auction game is one of the experimental paradigms that illustrates the entrapping situation. Sedikides et al. For instance... 1971. Research has shown that need for money does not alter the perception of insult implicated by a small offer. narcissists. 2005. Heine et al. 1980). the expense of self-esteem when attaining money is their primary goal. Markus. entrepreneurs can continue running the business to maintain their self-image as successful entrepreneurs. people in East Asia show a lesser degree of self-serving bias in attributing success to the self and failure to external factors than do individuals in Western cultures. 1988). Zhang & Baumeister. Research has demonstrated that people even want to bid more than $10 to gain the dollar in the auction. 2006). the results showed that people in all cultures scored above the theoretical midpoint of the scale. multiple players bid on a dollar bill. People keep throwing money into failing projects because they do not want to admit that their initial investment decision was unwise. in spite of their previous negative returns. who have high and vulnerable self-esteem. it suggests that they may choose money over self-esteem. There may be a shift of motivation in the dollar auction game. 1988. people are willing to pay more than $10 to purchase a dollar bill because they want to win Situational Need for Money In a society in which money is essential to survive or to live comfortably. they may prefer to sell their company to competitors or even ﬁle for bankruptcy to minimize their ﬁnancial losses. However. research in economics has suggested that there may be cultural differences in how people value money in comparison to self-esteem (Henrich. such as maintaining interpersonal harmony. 1985. 2003. The person who places the highest bid gains the dollar. Research on the dollar auction game has demonstrated that people become more likely to choose self-esteem at the expense of money in an economically irrational way when their self-esteem is threatened (Brockner & Rubin. participants who had received threats to their self-esteem—speciﬁcally. such as Japan. When people accept failure to reduce economic losses. There are still lively debates on whether people in both Western and Eastern cultures self-enhance (Heine. however. when their business does not perform well or their company has been in debt for an extended period. Ego threat may increase the choice of self-esteem at the expense of money because it stimulates the motivation to defend self-esteem (Baumeister. & Toguchi.. Lehman. Decision makers start the auction with a monetary concern—to buy another dollar with an amount less than $1 and therefore to win a little bit of money. Baumeister et al. Henrich et al. but does not receive anything in return (Brockner & Rubin. Cultural differences in how people value self-esteem may have an impact on the choice between money and self-esteem. However.MONEY AND SELF-ESTEEM IN DECISION MAKING 71 self-esteem is at risk and the domain in which people’s self-esteem is contingent may inﬂuence their choices between money and self-esteem. More important. being informed that they had a negative personality trait (Experiments 1 and 2) or being given performance feedback that they had failed a creativity test (Experiments 3 and 4)—invested a larger amount of money into losing projects than did those who did not receive such a blow to their self-esteem. Steele. 2005). 1998. In the experiments conducted by Zhang and Baumeister (2006). but not in domains unimportant to their selfconcept.. Teger. their motivation to defend their self-esteem is intensiﬁed. 2006). Future empirical research should ﬁll the gap by examining how trait self-esteem. Therefore. Teger. Zhang & Baumeister. their decision to bid more than $1 suggests that their motivation shifts to other factors. 2006). Gaertner. 2005. such as having a unique personality characteristic (Sedikides et al. 2003). may be more defensive than people with low narcissism (Morf & Rhodewalt. 2008). 1999. Most participants chose to invest additional money. 2008. such as beating the other person and saving face before the audience (Teger. responders are more likely to accept a proportionally low offer when they need the money for food than when they are not in such a deprived condition (Zhang.
Choices often produce cognitive dissonance because people have to make a decision between appealing options (Festinger. The acceptance rate of a proportionally low offer increases as the offer’s ﬁnancial value becomes large. and as a result. Wiesenfeld. People make an additional investment to demonstrate that they still believe that the project is promising. their reluctance to admit a previous mistake often produces accumulated monetary losses. A fair procedure . Zhang & Baumeister. The present theory may advance the understanding of economic irrationality and can apply to the ﬁelds of negotiation and organizational behavior. Research has demonstrated that procedural unfairness may threaten people’s dignity and lower their self-esteem (Wiesenfeld et al. such as for food and shelter. Second. 2000. Self-esteem boost may reduce the choice of self-esteem at the expense of money because it alleviates ego defensiveness (Steele. People accept insulting but proﬁtable offers when they need the money to buy necessities. 1990). 1992. ego threat promotes the tendency to forgo money to protect self-esteem. an object may carry more meaning than money. As a result. 1985. money serves as a general token in transactions. Money is valued because it is used to satisfy other needs. The augmentation effect addresses when money produces utility or dis- utility of self-esteem. The results of Experiment 3 in Zhang and Baumeister (2006) showed that participants whose self-esteem had been threatened bid more on the dollar than did the control participants. Cognitive dissonance refers to the aversive motivational state produced by discrepancies between attitude and behavior (Festinger. 1957).. self-esteem boost reduces the tendency to protect dignity at the cost of money. Participants in the self-esteem boost condition received success performance feedback. 1976). Self-esteem boost. although both have monetary value. Although the present theory focuses on money in the forms of cash. Empirical research has shown that self-esteem boost promotes the acceptance of offending but proﬁtable offers in the ultimatum game. participants ﬁrst completed a creativity test and then received their performance feedback.. Brockner. Therefore. Participants then played the ultimatum game that ostensibly had no connection with the previous test. & Thibault. Money is also desired because it fosters people’s perception of competence. The overcommitment to a losing endeavor may be viewed as an effort to reduce the cognitive dissonance aroused by the discrepancy between the investors’ originally favorable attitude toward the project and its negative economic returns. and self-esteem boost. a chi-square analysis was conducted after participants’ highest bids were coded into two categories: below (or equal to) $1 and more than $1. When the ﬁnancial expenses are held constant. 1990). Knetsch. 1890). Staw. and role of expected regret in decision making. 1988. research has shown that the effect of procedural fairness on the receivers’ self-esteem is inﬂuenced by outcome favorability. Therefore. The results showed that responders whose self-esteem had been boosted by the success performance feedback on the creativity test were more likely to accept an insulting but proﬁtable offer than were responders who had not received the self-esteem boost. Steele. procedural fairness. ego threat. The substitution effect emphasizes the degree to which money and self-esteem can compensate for one another. the transaction rate is lower than the theoretical point when only monetary utility is considered. Self-esteem. is a goal in itself. endowment effect. and a speciﬁc object does not function as common currency. People may forgo ﬁnancial payoffs to maintain their positive self-image of being a good decision maker. First. it may apply to certain situations in which money is represented by concrete goods. Monetary utility and utility of self-esteem function differently. Summary The choice between money and self-esteem is inﬂuenced by the amount of utility of self-esteem at stake. credit. As a result. Kahneman. however. 2006). substitution. the degree of ego involvement determines people’s choices. ego-threatened people become more likely to bid beyond $1 than do control participants (Zhang & Baumeister. A gold medal may represent pride more than cash. 2008). 1993). 1957). Research has demonstrated that efforts to reduce cognitive dissonance are driven by the motivation to maintain self-integrity (Steele. The competition effect may shed new light on the classic work on dissonance reduction. Ego threat increases the motivation to defend self-esteem. 1988.72 ZHANG the auction. & Lynch. It should be noted that there are distinctions between money and a speciﬁc object. and participants in the control condition did not receive any performance feedback. Spencer. There may be a price for dignity. The exchange theory of money and self-esteem provides a new perspective in understanding several important lines of research on the self. The present theory points out that the decisions in entrapping situations involve the tradeoffs between money and selfesteem. James. Furthermore. The results showed that participants whose self-esteem was threatened were more likely to bid more than $1 than were those in the control group. Research has shown that people usually value their own objects more than do others (Beggan. 2000). and the enhanced evaluation of these belongings fosters their self-esteem (W. and so forth. People gain satisfaction from their positive self-image. such as cognitive dissonance. Furthermore. 2000). future research should address the boundary conditions under which the exchange theory explains the relationship between a speciﬁc object and self-esteem. They give up money in exchange for utility of selfesteem. People become tolerant and accept offending but proﬁtable offers after their self-esteem is boosted. Sellers often ask for higher prices than buyers are willing to offer (Kahneman et al. General Discussion The exchange between money and self-esteem may follow three principles: augmentation. Sellers value their objects in part because their belongings are part of their self-concept. situational need for money. the monetary value of an option. & Thaler. and competition. The augmentation effect is consistent with ﬁndings on selfesteem and procedural fairness (Schroth & Shah. Therefore. In Experiment 2 of Zhang and Baumeister (2008). Ego threat stimulates desire for self-esteem and promotes the choice of dignity at the expense of money. The idea that people may make efforts to reduce cognitive dissonance after they make an initial decision is brought into focus by the classic research on entrapment (Brockner & Rubin. People follow some rationality when they evaluate the tradeoffs between money and self-esteem. The competition effect addresses factors that shape people’s choices between money and self-esteem.
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How the self became a problem: A psychological review of historical research. 52. or when their positive self-esteem has just been afﬁrmed. The competition effect between money and self-esteem is consistent with the ﬁndings that expected regret inﬂuences decisions because the prospect of making a bad decision threatens people’s positive self-image (Josephs et al. The cultural animal: Human nature. Oxford.. J. Organizational Behavior and Human Performance. If allocators only care about money. Baumeister. employees may enhance their productivity in return. J. The self. 1995. 15. 5–33. Employees gain satisfaction from the perception of competence and afﬁliation with a valuable group. improve their competence through training. People may prefer utility of self-esteem to money when the utility of self-esteem at stake is high or when their self-esteem has just been threatened. Their partners may lower their ego defensiveness and make concessions in monetary domains. Baumeister. they should keep it all to themselves. Thaler. pp. (1995). Baumeister. isolation. 2008). The exchange theory may apply to diverse lines of research. People may take money and forgo utility of self-esteem when they need the money to survive. Regret challenges the self-image of a good decision maker. & Leary. which makes the decision makers regret. M. R. Belk. T. & Sommer. Larrick. Zhang & Baumeister. a risky choice often has the possibility of bringing about a bad outcome. M. 1976). which equates the sum of each outcome’s value multiplied by its probability..). The utility or disutility of self-esteem produced by generating a payoff may promote or reduce the satisfaction derived from the payoff.). Roth. Furthermore. and framing shape the utility of self-esteem implicated in a ﬁxed amount of money. 142–152. The competition effect suggests that negotiators may facilitate settlement by afﬁrming the positive self-image of their negotiating partners (Fisher & Ury. and cooperation in conﬂict resolution. Samuels. meaning. decision makers may give up money to attain utility of self-esteem. 1970). L. The practice and theory of individual psychology (2nd ed. 1987. Krebs. Fiske. 1981. T. sublimation. 1993). 65–122). & Appelman. Ross. H. F. Dale.. Beggan. The exchange theory may facilitate research on the function of the self in ﬁnancial decisions. allocators usually give a portion of the money to the recipients. Prosocial motivation: Is it ever truly altruistic? In L. (1984). The augmentation between money and self-esteem suggests that a low bonus is offending (Zhang. People in advantageous positions also give up money in pursuit of self-esteem. Guth. 4th ed. The substitution effect interprets the degree to which money and self-esteem can compensate for one another.. 1081–1124. R. A. 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