Wednesday, June 15, 2005


Peer Pressure

I recently read an interesting article called "Peer Pressure" in Forbes magazine. (The April 11, 2005 piece may be read online with a free subscription to Forbes.com. Click here to read the article by Ian Ayres and Barry Nalebuff.)

The gist of the article is that corporations and governments can and ought to give people good data and use peer pressure to modify behaviors. Yet, we see few examples of this being done.

The authors give one hypothetical example regarding home energy consumption. Imagine if your power company or fuel-oil provider evaluated how many BTU's per square foot per heating degree day (call it a B-Tush) your home was using. In fact, in 1997 the Department of Energy produced a survey finding that the U.S. average was 10. If your home were at 25, then you'd be among the worst 10%. Imagine how this information may induce many homeowners to get better insulation, adjust the thermostat, or dress more appropriately for the season. It would be very easy for a company to provide this information -- after all, they know where you live, and they likely provide the same service to your neighbors who have homes that are likely of a similar size and construction. But does your energy company provide you with this information? Probably not.

A real-life example from "Peer Pressure" is the Center for Environmental Law & Policy's Environmental Sustainability Index, which motivates entire nations to live and work cleaner and more efficiently. Other hypothetical examples included:
  • The IRS informing taxpayers how their charitable giving ranks versus others in their age and income bracket
  • Law schools telling admitted students the probability that they will become lawyers (based on demographic and performance measures)
  • Guiding college students on how many drinks are the norm at a party

A while back, I had a (brilliant, I thought) idea for our company's 401(k) retirement plan provider, T. Rowe Price. I always looked at my quarterly balance statement and wondered, "Is my performance any better than the average participant at ICR, or among workers at my income level and age?" I submitted this suggestion to T. Rowe, but their disappointing response was that implementing my idea would be virtually impossible because of all the variables across plans.

Come on. There are three important variables -- how much money your portfolio is currently worth, how much money you've deposited into the plan, and how long you've been investing. I understand that different people will often change their allocations and proportion of salary invested, and this would complicate the meaningfulness of the formula. But, as a concerned investor, I'd still want to see that comparison on my statement. If my account is performing substantially better than others like me, I'd be inclined not to monkey with it. If I'm lagging, then perhaps I'd need to look more carefully at my asset allocation.

I realize that in any consumer population, there are a percentage who just want to be left alone and have their privacy kept intact. However, I honestly think that more companies and more government agencies could provide these kinds of "peer pressure" indices, so that those of us who do care can benefit from the information.

If you have any ideas for a "peer pressure" index, please comment here!


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5 Comments:

At 7:52 AM, June 17, 2005, Blogger Jessica said...

Interesting ideas!

 
At 11:45 PM, June 19, 2005, Anonymous Anonymous said...

"I realize that in any consumer population, there are a percentage who just want to be left alone and have their privacy kept intact. However, I honestly think that more companies and more government agencies could provide these kinds of "peer pressure" indices, so that those of us who do care can benefit from the information."

- This is why, I suspect, you are a Democrat.

 
At 9:18 AM, June 21, 2005, Blogger Gregory Kohs said...

I am currently a Democrat for one main reason -- over the past 15 years, only a Democrat in the White House has reduced the federal deficit in every year of his administration. The Republican office holders have only increased the deficit in every year.

 
At 12:39 PM, June 28, 2005, Anonymous Anonymous said...

Peer pressure seems to work on the youth so why wouldn't it work on us older youths? I don't think
we ever outgrow, to some degree, wanting our peer group to think well of us or wanting to compare outselves to others in our group. Good idea of your, Greg.

 
At 4:24 PM, July 21, 2006, Anonymous Anonymous said...

People, think about it, think big...first of all we can only decrease the deficit if we all benefit.
The reason we go back and forth from Democrat and Republican is because we are stuck in a "mind set".
We need to realize that our problems are our concern not the governments. To me, the people who are complaining about Demo or Repub are the ones who dont know how to live their lives and rely on the government too much. They are here to enforce laws. And, Yes, I agree, they need to spend more time doing that, but we all need to understand how not to break the laws. Dont discriminate, dont, lie and cheat every organization you see fit and dont run to lawyer and sue innocent people every time you want to retire...

 

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