Don’t tell the neighbors

In our new Gilded Age of reality shows and celebrity magazines, consumption is more conspicuous than ever. Economists worry about the effects of income inequality—but a recent Yale experiment suggests that it may be the display of excess wealth, not the wealth itself, that rips at our social fabric.

A team at the Yale Institute for Network Science, led by sociology professor Nicholas Christakis ’84, set up a laboratory game, grouping participants into social networks and giving each person some money. In some groups, everyone started the game with the same amount of money; in others, initial wealth varied. And, crucially, in some groups, people knew how much wealth their neighbors had, while in others, that information was hidden.

Subjects could choose either to invest in their neighbors—which created more wealth for the group as a whole—or to “defect,” at no personal cost but without a group benefit either. At the end of each game, the researchers examined changes in wealth inequality, as well as levels of friendliness and cooperation. (The results appeared online in Nature on September 9.)

Visibility turned out to make all the difference. In groups where wealth differences were hidden, high initial inequality levels drifted lower by game’s end. But when wealth differences were obvious, that very visibility acted to preserve inequality. Rich players in the “visible” scenario, Christakis explains, were the reason: they were less inclined to invest in obviously poorer neighbors. That toxic combination of initial inequality plus visibility also diminished overall goodwill and collective wealth. “It suggests this lack of niceness among the rich in these visibly unequal worlds,” Christakis says.

On the other hand, visibility may not be as harmful if inequality is minimal to begin with. It might be the case, comments Christakis, that making pay transparent would be helpful in companies with a low pay spread between CEOs and line workers—though it might be harmful in companies with high inequality.

The experiment doesn’t show harm to economic growth from inequality per se, a result that may please economic conservatives. Still, perhaps it’s high time for a comeback of that old-fashioned virtue: modesty.