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Visible wealth has a dramatic effect on economic inequality

Reuters/Erik De Castro
Now you see me, now you don’t.
By Frida Garza
Published Last updated This article is more than 2 years old.

When it comes to building a strong community, knowing how rich or poor your neighbors are doesn’t really help. That’s the finding of research published in the science journal Nature this month by social scientists from the Yale Institute for Network Science.

To study the effect of the visibility of wealth on economic inequality, the researchers placed 1,462 participant into 80 small-scale, computer-simulated societies—which had either no, low, or high inequality, as measured by the Gini coefficient (the high level of inequality paralleled US inequality levels). In a subset of each group, individuals could see how much money they had and how much money their neighbors had (about 5 people out of the 30 that made up their entire network). The rest of the participants were ”invisible,” meaning they only knew their own wealth.

Each society then played several rounds of a cooperation game, in which they could invest some money in their neighbors and potentially receive more back—or they could “defect” and not contribute to the larger group at all. In all groups, participants could see their neighbors’ choices after each round and could later decide to create ties with more people, or cut existing ties.

The researchers found that visible wealth in a society was more harmful than the presence of inequality itself. visibility had a negative effect on cooperation, interconnectedness, and total wealth in societies with both high and low levels of inequality, Nicholas Christakis, one of the study’s authors, told Quartz. (It did not, however, have the same deleterious effect on societies with no wealth inequality.)

The team also found a change in the behavior of the rich when wealth was visible. Under that scenario, the poor continued to invest in their neighbors, but the rich did not, which exacerbated inequality. In effect, the visibility of wealth reinforced whatever inequality already existed and made it worse, says Christakis.

The results suggest that knowing others’ wealth levels sparks psychological processes like social comparison, which drive competition and a “fear being last place,” the authors write. While hard to translate into the real world, the results, Christakis argues, could be used to support certain workplace policies, like whether or not to disclose pay rates across companies with high pay inequality.

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