Is a reputation economy really an economy?


Kevin Simler's 2013 essay on the economics of social status is a great, enduring Sunday sort of longread that should be required of anyone contemplating using the phrase "reputation economy" in polite society.

Contrary to my own views, Simler argues convincingly that you can have an economy based on status -- that is, that status can be spent and expended, exchanged for goods and services. He also makes a strong and important point that status isn't entirely social -- it has important biological correlates in things like cortisol and testosterone levels that have an inescapable effect on the cognition of the people who experience them. In other words, your status (and the status of those around you) isn't just about how perceive one another: those perceptions have a subrational impact on your mood and perception, which you can't change merely by applying rationality to the problem.

Most interesting to me was the section of the essay where Silmer tries to fit common economic concepts like inflation, liquidity, arbitrage and forex into the idea of reputation economics. I'm still not convinced that monetary economics are the best analogy to status games -- for one thing, you can't spend money and retain it, while there are many situations in which conferring status on others build your own, and where failing to do so decreases your own store.

Liquidity. Status, like other forms of capital, can be more or less liquid. Status liquidity is inversely proportional to how much it is institutionalized. Institutional forms of status include titles, formal roles, positions within a hierarchy, desk/office location, parking spots, and membership in decision-making bodies. These forms of status hold their value much better than reputational status — which is why they’re coveted by employees — but they also make some transactions more difficult. If you’ve ever worked with someone who’s not as valuable as his title or role would suggest, you know how frustratingly inefficient such an arrangement can be.

Gresham’s Law. Gresham’s Law states that “bad money drives out good.” The classic example is that people will attempt to spend coins suspected of being counterfeit before they spend coins that they know to be honest. Does something similar happen with social status? Emphatically, yes. Within the economy of an office, say, we can distinguish between the ‘honest’ status earned by doing one’s job vs. the ‘counterfeit’ status earned by carefully manipulating one’s image. It’s all too easy to reach an equilibrium where counterfeit, image-based status drives out honest, reality-based status. Once an office culture allows its employees to win large amounts of status by ‘talking themselves up,’ everyone drops what they’re doing to focus on seeking credit and avoiding blame. In such an economy, only a sucker does any real work.

The Economics of Social Status [Kevin Simler/Ribbonfarm]

(via Hacker News)

(Image: World's Best Boss, Kumar Appaiah, CC-BY-SA)

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