The economic psychology of excellence

How outstanding am I?

A measure for social comparison within organizations*

Prof. Laszlo GaraiDSc. Dept of Economic Psychology, University of Szeged, Hungary**

Dr. Margit K. Köcski CSc Research Team InfIdent University of Debrecen, Hungary

Abstract. In modern (whether small, large and nation-wide or global) organizations man has a prime interest in bearing an outstanding social identity based on a favourably se­lected status. The more excellent is one's social identity, the greater his/her chance to ob­tain, at a definite cost, an economic benefit (access to a scarce resource or to an advantageous trans­action). Both money and an outstanding social status are required for an economic chance.

This paper deals with a calculation device for converting the values of these media­ting fac­tors into each other: the measure of outstanding so­cial identity (MOSI). It ap­plies the sa­me logic by which the information theory calculates the value of the news about an oc­cur­rence that might have been expected with awell-defina­bleprobability. The proba­bi­lity at is­sue for calculating values of outstanding social identity (VOSI) is the one to be estima­ted in advance for getting an outstanding status in the organiza­tion and for this p proba­bility the value is calculated as the logarithm of the invert of p. This device for calcu­la­ting theVOSIenables complementary calculation of, e.g., additionnning, averaging etc. values.

The MOSI is presented in the paper, among other use, as applied to optimize human resources management.

How outstanding am I?

A measure for social comparison within organizations*

Prof. Laszlo GaraiDSc. Dept of Economic Psychology, University of Szeged, Hungary**

Dr. Margit K. Köcski CSc Research Team InfIdent University of Debrecen, Hungary

The economic psychology of excellence

In the 1950s and 1960s economists, sociologists, psychologists and philosophers described, independently of each other and using different terms, the phenomenon of craving for status. They claimed that this motivation might become just as much a passion for man in the modern age as the craving for money used to be for those living in the 17-19^th centuries, in that period of classical capitalist formation.

The change is also manifest in the fact that while the former passion prompted to the accumulation of money, the latter one may well encourage the spending of money not even earned, but borrowed. The latter, however, does not bring pleasure through the consumption of the goods in line with their utility value, but through the fact that the goods acquired, or the money spent on them, symbolize status. For a time it was customary to describe this period as the period of a consumer society, and to speak (with a degree of social criticism and ideological disapproval) of the craving for status symbols and conspicuous consumption. In connection with this, it was emphasized that in his consumption man was being guided less and less by the rational goal of achieving the greatest possible joy for the lowest possible cost, or the highest possible profit by the smallest possible inconvenience, and more and more by what was required by his position in society. One's guiding criteria for purchasing were instead based on what was required by his/her position in society. It seems that the 20^th century man had an important interest in acquiring a somehow excellent social identity based on a favourably selected status.

When individuals, groups, states, and groups of states spend money on kee­ping up their social status and their identity within that status their motive for this is not an aristo­cra­tic or snob­bish zeal. Instead, it may be rather rational: the endeavour to be among those with access to scarce resources, or to be enabled to participate in some kind of advan­tageous transaction.[1]The more advantageous the status of a candidate in society among those competing for a transaction, and the more excellent his social identity in regard to others, the lower the transaction costs will be for him/her. For this reason it might make sense to spend money (or, in more general terms, invest money, goods, time, chance to take on the venture) on increasing excellence. The only question is, how much money etc. is reasonable to be spent on how important an increase in the exellence of one’s identity.

The present study tends to contribute to giving this question a possibly exact answer.

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If money spent symbolizes status, then it could be that the acquisition of money grips modern man not because of his earlier passion for chasing it, but because acquired money can also symbolize status. Activity is motivated primarily not by the difference perceptible between costs and profits, but increasingly by the difference between our net income and that of others [2].

When in the conditions of so-called socialism those urging economic reforms argued that the money incentive needed to be put in the service of social goals, they were actually speaking about the motivating power of the craving for status when they insisted that incomes of people (who were in theory equal) needed to reflect unequal performance to a better extent. The matter is, that higher performance does not invariably mean more performance of a quantitatively measurable kind. The performance of an astronaut is perceived to be greater than that of an abattoir worker, or that of a housewife, although the first produces nothing measurable in the material sense, while the last-mentioned provides her services over a seven-day working week, the merit of which can be recorded materially. However, in the record of merit our intuition is guided, it seems, not by this, but by unconscious consideration of which performance is the more excellent. This is why one may find it in order for an astronaut to receive remuneration higher than that of, say, a butcher decades after his performance, while the housewife, who often continues her work until the end of her life, receives neither a salary, nor a pension.

But remuneration can be on a higher level without the payment of additional money: all organizations establish a system of benefits whereby some employees are favoured against the rest, the staff as a whole against those outside the organization, regular customers against occasional ones, and even the totality of customers is favoured against the whole population from which they emerge, etc. Among the benefits are those whose utility can be measured in money: grantees among the employees, and to a lesser degree all employees of the organization may, in addition to their regular salary, be enabled to use items of the organization's movable and immovable property free of charge or at a concessionary rate; they may have access to services paid for by the organization wholly or in part; regular customers might be given discounts when using services offered by the organization, etc. However, the intuition we use when bearing in mind the value of remuneration seems to be guided not primarily by considerations connected to its size in terms of money, but by a weighing of how distinguishing the benefit bestowed actually is.

Higher-level performances, therefore, can be rewarded through higher-level pay not on­ly in that more is produced according to the paradigm of material effectiveness, more is paid for it but also through remunerating a distinguished performance in a distinguishing way. As a matter of fact, what is measured is no longer the merit of the things produced, but that of the per­son doing the producing. Behind a distinguished performance our intui­tion sus­pects a com­bination of technical powers that is distinguished, too, by virtue of its ra­ri­ty, just as be­hind the distinguishing remuneration it suspects a person's distinguished social po­wer. In such a case, remuneration by its dis­tin­guishing po­wer symbolizes status and, thus, dri­ves peo­ple through the cra­ving for status, even when these people seem obsessed by a craving for money.

Around the time of the political and social changeover in Hungary, family groups or friends in vo­luntary enterprises within companies and in small private businesses sometimes drove themselves at an in­hu­man pace not only to maintain their standards of living or to be able to purchase goods quite be­yond the reach of the industrial proletariat and workers in the catering industry, but at least as much as to show how well they were getting on. For them and for others too, how well they were doing was ex­pres­sed in money or in conspicuous goods obtainable with it. But it was not the absolute amount that mat­tered, but its distinguishing character. Just as refrigerators or cars were not (as they had been ear­lier) suitable for demonstrating how far one had got, so in itself an enormous income would not ha­ve been sufficient incentive to mobilize such energy, if everyone had been able to work with colleagues se­lected by themselves in voluntary enterprises within companies, or in a small-scale independent enterprise.

The same passion was described by Kornai as the inner compulsion for ex­pan­sion, when, at a time when the now-collapsed socialist system was still capab­le of operating, he sought an answer to the follo­wing ques­tion: "What prompts a manager of a company under socialism to make investments or to accu­mu­la­te capital when he has no interest in any profit made?" The most important ele­ment was, in his view, that "the manager identifies with his own position. For such a manager there would always be a ba­sis for comparison, in the light of which his unit would appear outdated or inferior. [...] Managers felt a pro­fes­sio­nal rivalry in the best sense of the word. They wanted to augment their own professional pre­s­ti­ge [...]. This could be accompanied by motives perhaps less noble, but nevertheless understandable from the human point of view. With the growth of a company or public institution came an increase in the power and social standing of its manager, and, together with this, consciousness of his own impor­tan­ce. Directing 10,000 people feels much better than directing 5000. Greater power can bring greater ma­terial recognition, more pay, bonuses and privileges, depending on the system of incentives in force."[3]

More exactly, what motivates managers in such cases is not so much the ab­solute size of the unit under one's direction or the absolute degree of that unit's expansion, rather the extent to which those index-numbers rank the person or his/her organization as compared to others. Kornai concedes: “If someone was appointed, let's say, rector of one of the biggest universities in the country, or was made responsible for the protection of all the country's histo­ric monuments, or was entrusted with care of the country's water supplies, then no increasing of either his salary, authority, or power would result from his being able to secure 20 per cent greater investment for his sphere of acti­vi­ty.” However “the compulsion for expansion manifests itself at every level of the economic hierarchy: from the leader of a brigade consisting of a few wor­kers to a minister directing hundreds of thousands or millions of people. When the distribution of investment resources is on the agenda, all fight so that our brigade, our company, our ministry gets the most investment possible.”[4]

A smaller monetary increase might be accompanied by a more powerful increase in status. On other occasions a person might simply give up the idea of getting more money, because, when the possibility arises, he favours an increase in status instead. On the other hand, sometimes a person might give up a modestly paying but excellence conferring office and be ready to accept the lower status of competing with others on an equal basis, if doing so holds the promise of higher income in the future.

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Is it possible in such a case to calculate the increase in a status someone must achieve to offset loss of money, or how much of a decline in status he should accept for monetary gain? Can an increase, or decrease, in status be measured at all? Can a twofold, tenfold, or fiftyfold increase or decrease in status be compared with a simultaneously occurring decrease or increase in money, in order to establish whether someone has made a good or bad move when linking one to the other?

I am going to present a

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