QUEENSLAND UNIVERSITY OF TECHNOLOGY PhD Thesis IF49: Doctor of Philosophy (Economics) SOCIAL STATUS AND ECONOMIC BEHAVIOR Candidate: Gevorg Ordyan Principal supervisor: Professor Lionel Page Associate supervisor: Dr Sébastien Massoni 2018 Acknowledgments 2 First I would like to thank my primary supervisor Prof Lionel Page for offering me the opportunity to conduct this PhD research. I was given a considerable freedom in pursuing my research interests, and at the same time directed wisely through many complications whenever I was stuck in confusing realities of behavioral science. Next I would like to thank my associate supervisor Dr Sebastien Massoni for active day-to-day help in conducting my experiments, many insightful discussions and helping me to keep on track when problems started to feel unsolvable. Also I wish to thank Harriet Smith and Gaurav Gogoi for their excellent research assistance in conducting my experiments, which take a lot of time and energy. In addition I wish to thank the QUT Business School for providing all the necessary support, research funding and the strong scientific atmosphere, which are essential for doing a PhD. And of course I would like to thank all of my friends at QUT, who also contributed a lot to my work. Abstract 3 We have conducted three experimental studies investigating the impact of social comparison on economic behavior. Our first study is focused on risk-attitudes in social context. Outcome-based social preference models define the utility function as depending on income of peers. This predicts that choices over risky prospects should also depend on incomes of people with whom we compare ourselves. We test a particular model of contextual evaluation called range-frequency theory which predicts that social risk-attitudes should depend on one’s relative position between top and bottom members of the comparison group. We find a small decrease of risk- aversion when subjects have a low rank position within the comparison group, but changing one’s position between top and bottom members didn’t change risk- attitudes. In our second study we try to understand the role of internal status hierarchy when a small group makes collective risky decisions. Theories and experiments on risk and uncertainty are traditionally focused on individual choices. In real life however risky decisions are often made by small teams or committees, and there is very little research trying to understand the process of conflict resolution when team members have different risk-attitudes. Inspired by related research from social psychology, we hypothesized that internal status hierarchy is a key driver of group dynamics. We found that low status male participants were less willing to change their opinion during the collective deliberation process. As a result the collective decisions over risky prospects were slightly shifted towards preferences of low status males. In our third study we analyze the impact of multi-dimensional social status on bargaining. It has been long recognized in social science that human relations are shaped by their relative statuses based on several socially important hierarchies. It has also been hypothesized that people may overvalue the social dimension on which they hold a high status, and this might lead to conflicts in social relations. We 4 conducted an ultimatum bargaining experiment where players had different status positions on two very different dimensions. We tried to test if such an interaction results in conflict. Our result suggests that people are more likely to go for a compromise when faced with an opponent with opposite set of status positions. Keywords Social status, social decision theory, risk-attitudes, peer effects, risky investment, group decision making, ultimatum game, laboratory experiment, status hierarchy, status symbols 5 Statement for Original Authorship The work contained in this thesis has not been previously submitted to meet requirements for an award at this or any other higher education institution. To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made. Date: July 2018 QUT Verified Signature Signature: Contents 1. Introduction and literature review ......................................................................... 14 6 1.1 Terminology: definitions of “social status” from sociology and social psychology .................................................................................................................. 15 1.2 Empirical research on status: sociology and social psychology ................... 19 1.2.1 Studies on macro-level ............................................................................. 19 1.2.2 Studies on micro level .............................................................................. 20 1.2.3 Signaling status: conspicuous consumption ........................................... 22 1.3 Insights from neuro-economics ...................................................................... 25 1.4 Insights from evolutionary biology ............................................................... 27 1.4.1 Possible evolutionary origins of status-seeking behavior in humans 28 1.5 Modelling social status in economics .......................................................... 29 1.6 Research questions addressed in this thesis .............................................. 31 2 Risk in social context: the impact of range position ............................................ 39 2.1 Introduction ..................................................................................................... 39 2.2 Testing range-frequency theory ................................................................... 45 2.2 Experiment design ........................................................................................... 46 2.3 Hypothesis development ................................................................................. 51 2.4 Participants and procedures ............................................................................ 53 2.5 Results and discussion .................................................................................... 54 2.5.1 Secondary results: gender effect ............................................................. 59 2.5.2 Alternative models of social utility ......................................................... 63 2.7 Conclusion ....................................................................................................... 67 3 Collective risky decisions: the role of status hierarchy ................................. 69 3.1 Introduction ..................................................................................................... 69 3.2 The experiment ............................................................................................... 74 3.3 Hypothesis development ................................................................................ 77 3.4 Participants and procedures ............................................................................ 81 3.5 Results and discussion ................................................................................... 81 3.5.1 Groups ....................................................................................................... 81 7 3.5.2 Lottery choices .......................................................................................... 82 3.5.3 Bargaining behavior on individual level: the impact of status ....... 83 3.5.4 Bargaining behavior depending on group type .................................. 87 3.5.5 Status hierarchy and group dynamics ...................................................... 89 3.6 Conclusion ........................................................................................................ 92 4 Bargaining with status-inconsistency..................................................................... 94 4.1 Introduction ..................................................................................................... 94 4.2 The experiment ............................................................................................. 100 4.3 Hypothesis development ............................................................................... 105 4.4 Participants and procedures ......................................................................... 107 4.5 Results and discussion .................................................................................... 108 4.5.1 Status groups ........................................................................................... 108 4.5.2 Ultimatum game rejections in double-status interactions. ............... 116 4.6 Conclusion ...................................................................................................... 118 5. General conclusion ........................................................................................... 121 5.1 Summary ......................................................................................................... 121 5.2 General limitations ......................................................................................... 127 5.3 Design limitations and directions for future research ............................... 131 5.4 Policy implications ........................................................................................ 135 Appendix A: Supplement to Chapter 2 .................................................................... 137 A1: Experiment instructions