Can I borrow your reference point?

How do we compare our life experiences to those of friends and strangers? What is a reference point, what are its consequences & what does it imply for politics today?

Humans use reference points to navigate the world. How do people judge if their own salary is low or high? They compare it against a reference point, such as the salary they had at a previous job. 

I found in an experiment that it is hard for people to comprehend the fact that other people do not share their reference points. 

For example, if a man named Jason used to make $120,000 before COVID but has since had to switch to a job that only pays $80,000, he would be disappointed. However, there are workers in America who would assume that any person would be thrilled with a job that pays $80,000. They would struggle to sympathize with Jason’s disappointment. Jason, in turn, might not appreciate how difficult it is to afford a car repair for people in the lower end of the income distribution. 

We often talk of a moral obligation to sympathize with others and “walk a mile in his/her shoes”. We do not often “walk a mile” in the shoes of our neighbors just to be nice, and we can’t even do it for money. In a lab experiment, I put people in an environment where they could earn money for accurately guessing what others did. I found that people tend to transfer their own reference point on to other people, which causes them to make bad predictions. 

In the experiment, a few players were given $6 and then asked if they wanted to choose a risky investment. Players who already had $6 were hesitant to take risks that would involve losses. It would be painful for them to leave the experiment with less than $6. The players who were afraid to take risks assumed that every other player was afraid to take risks, even though they were told that most other players did not start the game with a gift of $6. Some players started the game with only $1. They had nothing to lose because no player could end the game with less than $1. The players who started with $1 took more risks and also incorrectly predicted that every other player would take more risks. 

For making correct predictions, participants can earn up to $12. The entire study lasts less than half an hour, so the stakes are reasonably high. Subjects have an incentive to take the predictions seriously. Letting their own biases get in the way means lost income. If people can’t get the right answer when they are getting paid, how much harder is it for them to fight those biases when they are making a casual judgment about their fellow citizens? 

I see a connection between the results of this mathematical exercise and the political polarization in America today. I see neighbors with dueling yard signs who think that anyone voting for the opposing political party to their own choice is simply evil. Someone with a black and white view of politics has usually failed to consider the reference point of the people who disagree with them. What I learned from my experiment is that considering a different reference point does not come naturally.

When President Trump won the election in 2016, many Americans were completely surprised. They had not predicted correctly what others would do, partly because they are ignorant of the views and life experiences of those living outside of urban population centers. 

After lab participants made predictions for the entire group, I provided an additional task that gives us reason for hope. Subjects were asked to consider only the people who had started the experiment with $1. The subjects who had started with $1, unsurprisingly, predicted that everyone who started with $1 would take risks. Those who started with $6, when explicitly prompted to think about the reference point of others, also correctly predicted risk-taking! Everyone realized that people who started with only $1 are likely to take more risks.

If people of opposing political persuasions spent more time learning each other’s life stories, then we would end up with a less toxic climate. The political discourse will be more productive if we start with an understanding that diverse life experiences lead to different judgments and behaviors. A lot of political persuasion is currently taking the form of bashing opponents. We can make more progress by stepping into their shoes and learning what life experiences are shaping voting behavior.

Joy Buchanan an assistant professor in the Brock School of Business at Samford University in Birmingham, AL. She received an Emergent Ventures grant for her research on entrepreneurship. You can find her on Twitter here.