Under the Influence: How behavioral contagion can drive positive social change

For all our high-minded talk about free will, humans often don’t behave all that differently from sheep: whether it’s where we live or what we drive, we tend to follow the herd. Through a well-documented process of “behavioral contagion,” our friends’ and neighbors’ choices profoundly affect our own, argues Professor Robert H. Frank in his newest book. And those choices, added up, have enormous economic, social, and environmental consequences.

Frank, the Henrietta Johnson Louis Professor of Management and professor of economics at the Samuel Curtis Johnson Graduate School of Management, takes a fresh approach to the economics of this phenomenon in Under the Influence: Putting Peer Pressure to Work (Princeton University Press, January 2020). Behavioral contagion has concerned economists at least since Thorstein Veblen decried “conspicuous consumption” in The Theory of the Leisure Class in 1899. Like Veblen, Frank is shocked by the waste of today’s arms-race-like competition for 5000-square-foot homes, luxury SUVs, and other “positional goods.” But while conscious of the absurdity of today’s consumption excesses — like the proliferation of “destination weddings” and bachelor and bachelorette parties — he views moral arguments over positional spending as a political dead end.

Instead, as with his previous, well-known work on income equality, Frank is motivated more by societal opportunity than moral unease.

Blaming people doesn’t change their minds, and there are often perfectly rational reasons to follow the herd, such as when the hunt for good schools drives people into the same, ever-more-expensive neighborhoods. Although individual choices may make perfect sense, in combination, they amount to economic madness and “profound waste.”

In that waste, Frank argues, lies great opportunity. A vast sum — he estimates it at more than $2 trillion per year — could be freed up by imposing higher tax rates on top earners. Such taxes could curtail costly “expenditure cascades” created by demand for those goods. “It’s free money!” he says, noting that when the wealthy all build bigger houses, the effect is merely to raise the bar that defines adequate.

Frank sees the tax phobia that prevails among many well-off Americans as rooted in the belief that higher taxes would make it harder for them to buy what they want. He calls that seemingly plausible belief “the mother of all cognitive illusions.” It would, of course, be true, he says, if only one person were taxed. But if top earners all faced higher rates, their relative purchasing power would be unaffected. And because the ability to bid successfully for life’s special extras depends only on relative income, the same penthouse apartments with 360-degree views would go to the same high bidders as before. But the same tax changes would reduce the environmental and social costs of larger houses and bigger vehicles.

Frank also proposes that “Pigouvian taxes,” named after the English economist who first proposed them, be targeted at socially damaging activities — such as drinking, smoking, and polluting — ideally at a level equivalent to their externalized costs. He recommends a tax on the carbon content of fossil fuels, a Pigouvian measure that would have ripple effects throughout the economy, wringing excess fossil energy use out of a wide range of goods and services. A large share of the proceeds of such taxes could underwrite the transition to a carbon-free economy.

In short, Frank argues that behavioral contagion could be a crucial policy tool in the fight against the most important externality of all, global warming. Though cognizant of the dire prognosis offered by climate scientists today, Frank takes hope in how behavioral contagion has driven social change far more rapidly than ever expected in areas like smoking prevalence and acceptance of gay marriage. Just as the number of one’s friends who are smokers has a strong influence on one’s likelihood of using tobacco, the degree to which friends and neighbors adopt solar panels and energy-efficiency technologies and practices is a powerful predictor of whether an individual adopts them.

Listen to Frank discuss his book in this Present Value podcast, Putting Peer Pressure to Work | Robert Frank.