Research Papar

Topics: Consumer theory, Income, Origami Pages: 27 (8756 words) Published: August 23, 2013
Importance of Money

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RUNNING HEAD: Importance of Money

The Effect of Income on the Importance of Money: Survey and Experimental Evidence*

Sanford E. DeVoe Rotman School of Management University of Toronto Jeffrey Pfeffer Graduate School of Business Stanford University Byron Y. Lee Renmin University of China Beijing, China

*To be published in Industrial and Labor Relations Review.

KEYWORDS: judgement and decision making; money; income, experiments.

Importance of Money

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Abstract The authors investigate how both the amount and source of income affects the importance placed on money using a longitudinal analysis of the British Household Panel Survey and evidence from two laboratory experiments. Larger amounts of money received for labor were associated with individuals placing greater importance on money, but this effect did not hold for money unrelated to work. The longitudinal survey analysis demonstrated these differential effects of the source of income on money’s importance while holding constant stable individual differences. The experiments provide evidence that the source of income has a causal effect on the importance of money as well as on the effort expended to earn more money. Even as individual differences in the importance placed on money may affect peoples’ income, our results suggests that, depending upon its source, income can also affect the importance people place on money.

Importance of Money

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The Effect of Income on the Importance of Money: Survey and Experimental Evidence

The strange part is, the more I made, the more I got preoccupied with money. When suddenly I didn’t have to think about money as much, I found myself starting to think increasingly about it. Money corrupts the mind. –Daniel Vasella, CEO of Novartis (quoted by Leaf, 2002, p. 109)

The importance people place on money affects numerous aspects of work and labor. Choices among jobs that vary on multiple dimensions depend on the relative importance the chooser places on money compared to other job attributes such as the nature of the work itself (e.g., Shapira 1981), and workers self-select into job types that suit their preferences (Clark, 2005). The fundamental decision determining the supply of labor—how much leisure to forego for income—depends not just on the exchange rate between time and money but also on how important money is to the person making the decision (e.g., Lazear 1991, 1998). The common use of monetary incentives to affect behavior and motivation in the workplace is dependent on the importance the employee places on money (Lawler 1981). In this article, we explore whether the amount of money and its source affects the importance people place on money. We hypothesize that because money is not just a medium of exchange but can also signal someone’s competence, money that comes from labor and that therefore signals competence can make people value money as more important. Our analysis helps shed light on the paradox articulated by the opening quote—even though having more money should make money less focal, money from labor makes money more important because of its tie to one’s sense of competence. Background and Hypotheses

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There are several different theoretical perspectives consistent with observing a connection between income and the importance people place on money. First, there may be relatively stable individual differences in people’s preference for money that in turn affect their behavior in ways that produce a correlation between money’s importance and income. The various scales measuring the importance of money (e.g., Mitchell and Mickel 1999; Tang 1995) proceed from the implicit assumption that the importance placed on money is a meaningful and reasonably stable individual difference. Individuals who value money more presumably pursue its acquisition more vigorously (Cable and Judge 1994). Therefore, these fixed individual differences in...

References: 4: 193-185. Thaler, Richard H. 1999. Mental accounting matters. Journal of Behavioral Decision Making, 12: 183-206. Thaler, Richard H., and Shefrin, Hersh M. 1981. An economic theory of self-control. Journal of Political Economy, 89: 392-406.
Table 1. Fixed-Effects Regression Predicting the Importance of Money in Study 1. Summary Statistics 6.45 (1.84) £10.07 (9.61) £480.74 (3279.38) £40,605 (66,319) 9.06 (1.65) 62% (0.49) 2.99 (1.24) Model I Model II
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