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March 27, 2013

The Race from the Bottom

While people strive for first place, they'll also take a gamble to get out — and stay out — of last.

In 1899, baseball’s Cleveland Spiders were historically bad. They played 154 games and lost 134 — easily among the worst seasons ever. Not surprisingly, attendance that season was equally poor. So few Ohioans showed up to watch the Spiders lose, historian Bill James later wrote, the team eventually canceled its remaining home games and spent the rest of the season on the road.

Cleveland fans are not alone in their aversion to last place. People often celebrate first: there’s a parade for the Super Bowl champions, the top salesman at the office gets a bonus. Yet whether it’s an innate human trait or a response to seeing others treated poorly, people are also conditioned to avoid being labeled — or associated with — the worst.

Just how far will people go to stay out of last place? Professor Ilyana Kuziemko, along with Ryan Buell and Michael Norton of Harvard and Taly Reich of Stanford, explored this question through a series of laboratory experiments.

In one set of tests, the researchers were interested in subjects’ willingness to take risks. Generally speaking, economists say, the poorer the person, the more averse they probably are to gambling an absolute amount of money. Consider a person with a mere $10 to his name. He might be wary of risking $5 on a coin flip since, if the toss were to go the wrong way, he’d have lost half his net worth in the blink of an eye. A person with more in the bank, on the other hand, would likely be bolder.

In the lab, though, the researchers saw something different. There, participants were ranked in terms of randomly assigned wealth and, over a series of rounds, given the chance to move up. Each round, participants had the choice between taking a small but guaranteed sum or gambling to earn (or lose) even more. Those who fell to the bottom, the researchers found, were far more likely than any of the other players to attempt to gamble their way out. “We attribute that to their being so desperate to get out of last place,” said Kuziemko.

In another set of games, the players were again assigned money and ranked. Then each had the choice of giving additional funds to the player one spot up or down (they couldn’t keep it for themselves). Most participants were charitable to those less fortunate, the researchers found, with one exception. “Almost half of the people who were in second-to-last place,” said Kuziemko, “actually gave the money to the person who was already richer, because giving to the person below would mean that that person would leapfrog over them and they, the second-to-last place player, would be in last.”

Last-place reluctance can also be seen in relation to the federal minimum wage. In his State of the Union address in February, President Obama called on Congress to raise that hourly rate from $7.25 to $9. While the proposal is likely to be popular among those making the current minimum, a surprising number of workers earning slightly more may oppose it, according to Kuziemko. She and her colleagues surveyed workers’ opinions on the subject as part of the same study.

From the results, and from looking at data from a similar Pew Research Center report, the researchers saw that low-income workers, those making just above the minimum, are in fact often the least likely among all wage earners to express support for a minimum wage hike. For these people, such a raise could lead to their joining the lowest income bracket. And like the lab participants, many of the workers show signs of being last-place averse.

While minimum wage increases are generally popular, these results suggest that support among low-income households might be less predictable than expected. Kuziemko emphasizes that these results are unrelated to the merits of the policy. “Our results might explain why it is or isn’t popular,” she said, “but they don’t suggest anything about whether or not it’s good policy.”

Listen to Ilyana Kuziekmo discuss this research in this Columbia Ideas at Work podcast:

 

Ilyana Kuziemko is associate professor of finance and economics at Columbia Business School.

Read the Research

Ryan Buell, Ilyana Kuziemko, Michael I. Norton, Taly Reich

""Last-Place Aversion": Evidence and Redistributive Implications"

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