The Prestige Markets, Or, Explanatory Problems in Economics

Harvard. Prestige, we has it.

A few months ago I read the book Flash Boys, which is the Michael Lewis cowboy shoot-em-up story of the recent High Frequency Trading shenanigans. Early in the book, Lewis gets talking about the American Banker Lifestyle and its associated ecosystem, and how in that ecosystem it's REALLY important to work for the "right" bank.

And the "right" bank, it turns out, isn't the one that is the most successful financially or the one that has the best job amenities or whatever. The "right" bank is basically a matter of cool. Central to Lewis's narrative is how the Canadian outsider hero of his story comes to town and is a little mystified by the way the whole thing works -- and how the Canadian bank he works for, RBC, is never really in the running for cool, even when they start to make a gazillion dollars and come out on top of various official rankings and so on. Though you'd think money is the thing -- money isn't really the thing.

In banking, it seems hierarchy isn't about money. It's about ... something else, something associated with aggression and masculinity and something something I'm not clued into. When I read that I thought, "Wow, people are really motivated by ... something."

Then I a week or so ago I read this Washington Monthly article about how students at Harvard, who come in to university determined to something interesting or different or altruistic, and who have never even really heard of investment banking when they arrive, are nonetheless lining up like lemmings for the Wall Street jobs come senior year.

The article showcases how the banks have created a system on campus that attaches prestige to banking jobs and taps into the students' shared mania for competition. It's like the kids go, "Oh, that's the plum? Oh, OK -- look, I can get it!" with little sense of why this particular thing would be the thing at all or what the point is of any of it.

And I thought -- aha, that's it! It's "prestige" that is the word I was looking for, for what so often motivates people in surprising ways.

Once you think about prestige as itself a kind of consumer good, you can see some interesting things. Because it's a social value, it's entirely a matter of culture what does and does not grant prestige. And culture is, as always, fickle. Men can often get prestige through money and career achievement -- but not always. For women it's almost like "being hot" is a necessary -- but certainly not sufficient! -- condition for prestige. One of the effects of racism and other -isms is that some people can't get prestige, because no matter what, other people don't see their accomplishments with a prestige-oriented halo.

As the New York Times explained the other day, it's difficult to get men to want to be school teachers. One reason? It's a "status" thing. Low prestige.

I know it's not news that people are motivated to gain prestige. But these examples seem to suggest that people are not just "sort of" motivated to gain prestige, but that they're really motivated to gain prestige. And the Harvard example suggests that it's not all that hard, in certain contexts, to nudge people's perceptions about what does and doesn't count.

From the economic point of view, does the pursuit of prestige reflect an irrational obsession with status over "real goods" or does it reflect the rational pursuit of subjective, but proper, goal?

Actually, I think you could say either -- but in some ways both answers seem wrong to me. Many of the goods we pursue are social goods, and it would be most peculiar to set up a theory in which it's always irrational to pursue a social good at the cost of, say, material objects or other kinds of experiences. The whole idea of rational choice theory is that it's supposed to be neutral with respect to what is, actually good: so if what you want is status and prestige who is any theorist to tell you you're wrong?

On the other hand, it seems strange to say that a person who gave up a lucrative career they would otherwise have loved only because their friends made it seem appealing and they got all competitive about it had actually not lost anything at all. So that the prestige points -- even if they are fleeting and fade -- are just as good as the everything else points. Yet that is what we'd have to say if prestige is an ordinary good alongside others.

It seems to me to matter what the context is for the given preference and how the person came to have it. That's not a radical view: some theorists of preference have said it's essential, in using preferences, to pay attention to where the preference came from.

The thing about that, though, is that once you start talking not just about preferences but also about where those preferences come from, you're suddenly actually talking about "why people do what they do" -- which, in case you haven't noticed, is kind of a complicated humanistic contextual etc. etc. kind of question.

That is, it's not the kind of thing you can understand with economic models and axioms and stuff. You actually have to read some history and literature and philosophy and sociology and probably art and music theory and all kinds of other things.

If you do happen to want to learn those things I'm happy to tell you those departments still exist and we still get together and talk about stuff -- but with the way things are going, it might not be for long.