Why visible wealth makes inequality worse

The economic gap between the rich and poor becomes even wider when the inequality is made visible, a new Yale University study says.

Researchers from the Yale Institute for Network Science (YINS) found that when people didn’t know their neighbors’ financial status, they cooperated and interacted much better with each other. But when people were able to see a significant gap in wealth between themselves and their neighbors, the social fabric began to unravel — and the gap in wealth became wider than when the economic inequality was invisible.

“In our experiments, making wealth visible was a very corrosive force; doing so reduced cooperation and widened economic inequality. It resulted in the rich exploiting the poor,” said Nicholas A. Christakis, director of YINS and senior author of the study, published in the journal Nature. Christakis is the Sol Goldman Family Professor of Social and Natural Science at Yale.

“Our results suggest that, surprisingly, the visibility of others’ wealth may have more of a social impact than the actual inequality of wealth,” Christakis said.

The researchers used new, innovative software, called Breadboard, to place 1,462 test subjects into 80 temporary, small-scale “societies” with three distinct levels of economic inequality, including levels seen in the United States today. The interactions in the experiments involved a series of cooperation games, in which participants were given an initial endowment (some received more than others) and then interacted in ways that increased or reduced their wealth.

“Most previous experiments exploring cooperation have ignored inequality,” said co-author David Rand, an assistant professor of psychology, economics, and management at Yale, and director of Yale’s Human Cooperation Laboratory. “But human societies are typically very unequal, today more than ever, and so understanding the impact of inequality is of great importance.”

The experiment provided a rare opportunity to conduct social research in a controlled, laboratory environment. Most research into the nature of something as complex as economic inequality is forced to rely on statistical analysis of observed data.

“We wanted to do a laboratory experiment to address this important topic,” Christakis said. “What are the fundamental consequences and causes of economic inequality? How does inequality, and visible inequality in particular, affect people’s wealth, cooperativeness, and social interactions? This experiment allows us to isolate some of these things.”

Akihiro Nishi, an associate research scientist at Yale and the paper’s first author, called visible wealth “the dragging force” in the experiment. “What we did was try to understand the behavioral impacts of inequality at the individual level,” Nishi said.

The experiment also showed other negative effects of visible wealth. As the chasm between rich and poor grew more pronounced, social networks saw lower levels of interconnection, cooperation, and overall wealth. The same was not true in social networks where individual wealth remained hidden.

Why does this happen? The researchers said visible gaps in wealth might set off neurological and psychological processes that undercut social cooperation. People may begin to perceive their financial status as a competition, for example.

“These are complicated interactions,” Nishi said. “I would say, ‘If you are watching others’ wealth, watch out.’”

Yale sociologist Hirokazu Shirado also co-authored the paper.

This article is published in collaboration with Yale News. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Jim Shelton is the Senior Communications Officer for Science & Medicine at Yale University.

Image: Pedestrians walk inside a train station in Tokyo November 14, 2006. REUTERS/Yuriko Nakao