On Positive and Negative Attributes in Perceptions of Value

Abstract

Perceptions of wealth influence a range of financial decisions. A consumer who feels wealthy may be more likely to purchase an expensive car or take an exotic vacation, and may be more likely to borrow if she needs funds to do so. Net worth (a person's assets minus her debt) is generally accepted as a concrete measure of financial wealth. However, I demonstrate that perceptions of wealth can vary when both net worth and social context are held constant. The composition of net worth--assets and debt--can affect wealth perception. Holding total wealth constant, people with positive net worth feel and are seen as wealthier when they have lower debt (despite having fewer assets). In contrast, people with equal but negative net worth feel and are considered wealthier when they have greater assets (despite having larger debt). I demonstrate that these patterns can influence important financial behaviors: those who have favored allocations of assets and debt express a higher willingness to spend on a variety of goods and a higher willingness to borrow additional money to purchase items they could not otherwise afford. This suggests the counter-intuitive outcome that borrowing and spending can appear more attractive to those who can least afford it. Next, I provide support for a shift in attention from debt for those with negative net worth to assets for those with positive net worth contributing to this pattern, and I show that parallels to these preferences can be observed in other domains where positive and negative components net against each other. I conclude by discussing policy implications of these findings.