Vonasch, A. J., Mofradidoost, R., & Gray, K. (2024).
Personality and Social Psychology Bulletin, 0(0).
Abstract
If money is good, then shouldn’t more money always be better? Perhaps not. Traditional economic theories suggest that money is an ever-increasing incentivizer. If someone will accept a job for US$20/hr, they should be more likely to accept the same job for US$30/hr and especially for US$250/hr. However, 10 preregistered, high-powered studies (N = 4,205, in the United States and Iran) reveal how increasing incentives can backfire. Overly generous offers lead people to infer “phantom costs” that make them less likely to accept high job wages, cheap plane fares, and free money. We present a theory for understanding when and why people imagine these hidden drawbacks and show how phantom costs drive judgments, impact behavior, and intersect with individual differences. Phantom costs change how we should think about “economic rationality.” Economic exchanges are not merely about money, but instead are social interactions between people trying to perceive (and deceive) each others’ minds.
Significance Statement
This article introduces the concept of “phantom costs,” which explain why incentives backfire. This effect is important for any situation in which incentives are offered, ranging from jobs to governmental policies. The standard model in economics assumes people respond rationally to incentives—for example, people are more likely to accept offers for more money than less money. However, this reveals that people spontaneously appreciate the social context of financial offers—especially overly generous offers. Phantoms costs reveal an important change from the standard model beyond standard heuristics and biases. Phantom costs also provide a framework to make sense of other seemingly paradoxical effects of money and provide an important bridge between behavioral economics and social cognition.
Why is this important for clinical psychologists and mental health professionals?
- It provides insights into irrational decision-making and cognitive biases that can contribute to mental health issues like anxiety, obsessive-compulsive disorder, and depression. Understanding these biases can help clinicians better conceptualize and treat certain disorders.
- The findings relate to how people evaluate costs/benefits, which is relevant for motivational issues in psychotherapy. Clinicians could apply these concepts to enhance patient motivation by framing treatment recommendations in ways that reduce perceived "phantom costs."
- It highlights the role of emotions and intuitive judgments in decision-making, which is important for clinical psychologists to understand when working with patients to modify maladaptive thought patterns and behaviors.
- The study touches on consumer psychology, which has applications in areas like health behavior change. Clinicians could use similar framing effects to promote healthier choices by patients.
- More broadly, it demonstrates how psychological research can yield counterintuitive insights that challenge assumptions, which is valuable for clinical practice rooted in empirical evidence rather than intuition alone.
