Investing as a Competitive Sport

The playground. Getting into college. The job market. We re always competing. In the movies, it s the underdogs who usually win. The competition fires them up, and they take the big dogs down. But is that really how the human competitive instinct works?

When does competition make us do better? When does it make us do worse? What makes you work harder? And what discourages you from doing your best?

While we have an intuition that competing with someone better than us pushes us to raise our game, a new study points to the opposite conclusion: We re not particularly motivated to surpass a group we consider to be above us, but we ll fight like hell not to be overtaken by a group below us.

The study, in the Journal of Experimental Social Psychology, by Nathan C. Pettit of Cornell and Robert B. Lount Jr. of Ohio State University, looked at group behavior by pitting groups of undergraduate student volunteers against what they were told were teams from other universities. These other teams didn t exist though a researcher, during the experiment, would pick up the phone and pretend to be talking to a colleague in another lab but instead were a fiction designed to elicit competitive behavior in the subjects.

Some of the students were told they were competing against teams from lower-status universities, and some were told they d be competing against teams from higher-status universities (status being determined by U.S. News & World Report college rankings lower-status schools ranking an average of 14 places lower than the students own schools, higher-status schools ranking an average of 12 places higher).

The task the students were given to compete at was described as a basic information-processing task: coming up with uses for a knife (the study is silent as to how many students listed stabbing ). Students were specifically told that the task didn t measure cognitive aptitude, like IQ, so that they wouldn t assume that they were at an inherent advantage or disadvantage compared to students from a lower- or higher-status school (more on this in a moment).

So, which scenario fired up students competitive instincts? Surprisingly, students performed exactly the same when they were told they were competing against a higher-status university as when they were competing against no one (the control group). In both scenarios, the students generate about 31 uses for a knife in 12 minutes.

But when the students were told they were competing against a lower-status university, their performance jumped coming up with an average of 41 uses in 12 minutes (a 33% increase).

Why the jump in this scenario and not against a higher-status university? The researchers theorize that there could be a conservation of effort effect involved if you don t think you re likely to win, why try your hardest? A superstar effect along these lines has been found in sports specifically golf, where Tiger Woods presence at a tournament has been found to make other players simply give up.

Another possibility is that while the chance to gain seems like something that would motivate people, in reality we re much more concerned about losing status. That is, as research into loss aversion has shown in other aspects of human behavior, especially financial behavior, we like to win, but not quite as much as we hate to lose

Another light in which it might be informative to view this study is with respect to research into what s called stereotype threat. This is a well-known effect in which stigmatized groups such as African-Americans or women perform worse when prompted to focus on negative stereotypes about their group. Thus, African-Americans taking the SAT, if asked to check a box listing their race before the test, will perform worse than if they were not promoted to do so. Conversely, Asian students asked to mark their race tend to perform better, because of positive stereotypes about academic achievement.

Or, take the case of a female, Asian student prompted to think about her Asian identity, she is likely to perform better; prompted to think about her female identity, she is likely to do worse.

Being the underdog, far from always encouraging us to work harder, can actually discourage us into thinking our efforts are futile. Being on top, on the other hand, seems to make us guard our status all the more fiercely.

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