The power of peer comparison

People tend to significantly adapt their behavior according to what others do. Now, that’s old news. However, it is often underestimated just how powerful this social mechanism is. And few of us understand how to use it for their advantage. Learn to guide yourself towards a more conscious consumption behavior with the help of peer data.

What’s your favorite sitcom?

The Big Bang Theory? How I Met Your Mother? No? Well, then I bet it’s Friends. Funny, aren’t they? Such a pleasant, easy format of entertainment. And it makes you laugh too. But is it because the jokes are really that good? According to Robert B. Cialdini, Ph.D. this is not the only reason. Comedy shows like these use canned laughter. Why? Because experiments have proven that the use of canned merriment causes people to laugh longer and more often. The principle behind it is called social proof. We think that when others laugh, it must have been funny. So, we laugh more when others do too.

We are all lemmings

The principle of social proof describes the basic tendency of human beings to emulate others and to act similarly. And that’s not a bad thing. To consider a behavior more appropriate when others are doing it normally works quite well.

„As a rule, we will make fewer mistakes by acting in accord with social evidence than contrary to it. Usually, when a lot of people are doing something, it is the right thing to do.“

Cialdini, Ph.D. puts it in his book ‘Influence - The Power of Persuasion’

What can we learn from this?

The important thing to understand is that humans are relational beings. And that great power comes with that realization. The US American company Opower has demonstrated this in a very impressive way when it made these findings about peer group-oriented behavior applicable to its clientele. In particular, it modified electricity bills to show not only the consumption of the household they are addressed to but also that of its neighbors. It shouldn’t surprise you at this point that customers began to adjust their consumption to approximate the average.

Nudge yourself towards better choices

Now, you can wait for someone else to give you a nudge in the right direction. Or you use that insight yourself and start engaging in a method called self-nudging. The idea of guiding yourself or other people is derived from the gentle nudges with which an elephant’s mother leads her young to the watering hole. It has become tremendously popular since the publication of the bestseller “Nudge” by the two US scientists Richard H. Thaler and Cass R. Sunstein.

People who realize that they are spending more than their peers, manage to reduce their expenses by an average of 23%.

How to leverage social proof

If you are looking for a way to motivate yourself to master your finances, make use of the power of peer comparison to help you push forward:

  1. Reflect on your spending behavior.

    For example, comparing your budget to others might make you realize that you’re already making a good deal on groceries. Or that you’re overspending money on transportation or rent.

  2. Detect saving potentials

    These insights give you concrete hints on how to optimize your consumption behavior in order to save more.

  3. Make realistic plans

    Take on small challenges adapted to your possibilities. Check how other people your age and income managed to reach their financial goals to make sure your plans are doable.

Surprise yourself

It’s astonishing what people can make possible once they know that others can too. For example, a study by Statusmoney found out that people who realize they are spending more than their peers, manage to reduce their expenses by an average of 23%. Interestingly, the participants with the lowest income changed their behavior the most.

To sum up, benchmarking your lifestyle against others does not only give you a concrete sense of where you stand but may also provide you with hints on how to live more economically and ecologically. By looking at your peers for comparison and following intelligent advice, you can self-nudge your way to a more conscious consumption behavior. We hope you find this as fascinating as we do and that it helps you reach your goals faster and more easily.