🔑 Key Takeaways
- Economists Ben Handel, Rafael Jimenez, Christopher Roth, and Leonardo Burstein discovered the concept of 'bursting' - the cost of not consuming a product, particularly relevant to social media platforms where users feel pressured to participate despite their preference otherwise.
- Studies reveal social influence impacts career decisions in professional settings, like MBA programs, and social media use can have profound effects on individuals and society, both positively and negatively.
- Social media's impact on non-users can lead to societal welfare loss, even if consumers are willing to pay for it.
- People are willing to accept lower payments or even pay to deactivate their own social media accounts when their network does, demonstrating the influence of network effects on social media usage.
- Despite expressing a preference for the non-existence of social media platforms, many users continue to use them and are willing to pay for others to quit.
- Studies reveal people's motivations for using social media, such as fear of missing out and addiction, can be complex and not mutually exclusive.
- People may pay to quit social media, but fear of being left out keeps them engaged. Addressing social pressures could help.
- Users may find it difficult to quit social media due to fear of missing out and social isolation, and platforms can leverage this to keep users engaged
- Possibility of decreased social media use due to observed negative impacts, increasing caution from parents and legislation, and future research on time allocation and preferences.
- Social media's externalities can only be mitigated by giving up the very thing that causes them, making it a challenging issue, unlike traditional addictive products where avoiding them is simple.
- Researchers are investigating the potential negative welfare implications of social media use and the possibility of a shift in status-seeking behavior, which could have implications for regulations.
📝 Podcast Summary
The Cost of Not Consuming a Product: Bursting
Economists Ben Handel, Rafael Jimenez, Christopher Roth, and Leonardo Burstein have identified a simple but overlooked idea in economics: the cost of not consuming a product, which they call "bursting." This concept is particularly relevant to social media platforms like TikTok and Instagram, where users may feel pressured to participate even if they would prefer not to. The researchers, who have explored the impact of social environments on economic decisions, were initially inspired by the demand for luxury credit cards and the creation of new, fancier versions. They propose that people might not want certain products to exist but feel compelled to buy them once they're introduced. The team's experimentation-focused approach to economics, which they discovered during their work on education and development in Brazil, has allowed them to test theories and address real-world problems.
Social influence shapes career choices in MBA programs
Social influence significantly shapes people's decisions, even in professional settings. A study by Burstein et al. (2017) revealed that unmarried female MBA students altered their career preferences when they believed their classmates would see their answers, indicating the impact of gender norms and dating market penalties. This finding highlights the importance of understanding how social environments influence individual behavior, particularly in the context of social media. Researchers have also explored the potential negative effects of social media on society. For instance, a study on the Russian social media platform VK found an association between social media use and xenophobic crimes and attitudes. These findings suggest that social media can have profound impacts on individuals and society, both positively and negatively. When considering the potential downsides of social media, it's essential to recognize that these platforms are not inherently good or bad. Instead, the impact depends on how people use them and the social norms they adopt. Understanding these complexities is crucial for researchers, policymakers, and individuals to make informed decisions about their use of social media.
Product Market Trap in Social Media
The paper discussed by Ben Handel, a professor of economics at UC Berkeley, challenges traditional economic concepts of product welfare, particularly in the context of social media. Instead of focusing on consumers' willingness to pay for a product, the paper explores the concept of a "product market trap," where a product may negatively impact non-users, leading to a societal welfare loss, even if consumers are willing to pay for it. This new framing of product market welfare is particularly relevant to social media, where non-users can experience negative effects from others' usage.
People value social media more when their network uses it
Social media usage may be influenced by network effects, leading people to value the platform more when a larger number of their network is using it. Economists Ben Handel and Leonardo Burstein conducted an experiment using college students and found that people are willing to accept lower payments to deactivate their own accounts when their network does, and are even willing to pay to deactivate everyone's accounts, including their own. This phenomenon, called a "product market trap," can apply to various markets, such as status products like fashion or luxury cars, where individuals' value of the product is tied to the usage of others in their network.
People's Contradictory Feelings Towards Social Media
Despite many people expressing a preference for living in a world without social media platforms like TikTok and Instagram, a significant number of these same individuals are active users of these very platforms. This contradiction was discovered through an online survey where participants were asked about their consumption habits and preferences for the existence of these platforms. The survey found that 44% of buyers of luxury goods, including Gucci, Versace, and Rolex, expressed a wish that these products didn't exist. Similarly, 50% of users and 70-80% of non-users of social media platforms indicated a preference for their non-existence. However, when asked if they would pay to have everyone quit using these platforms, 70% of non-users and a significant number of users expressed a willingness to do so. This suggests a disconnect between what people say they want and what they are willing to pay for in the real world. The researchers acknowledge the limitations of their survey-based approach and the importance of considering both declared and revealed preferences. They argue that their experiment, which involved paying participants to quit social media, provides valuable insights into counterfactual scenarios that are not directly observable in the real world.
Understanding Complex Motivations for Social Media Use
While researchers may conduct experiments suggesting large-scale deactivation of social media networks, the reality is that recruiting two-thirds of students at a university to participate is unlikely. This is a useful fiction in experimentation. The results of these studies reveal that people's motivations for using social media, such as fear of missing out and addiction, can be complex. While some may view social media use as a trap, others may see it as a desirable yet unwanted habit. Comparing social media use to addictive substances like cigarettes is an interesting perspective, highlighting the potential for addiction in social media use. However, it's important to note that the concepts of fear of missing out and addiction are not mutually exclusive and can overlap.
The Fear of Missing Out Keeps Users Engaged
Social media use can feel like a collective trap, with users experiencing a powerful sense of FOMO (fear of missing out) that keeps them engaged despite their misgivings. According to a recent study by Ben Handel, Leonardo Burstein, Rafael Jimenez, and Christopher Roth, people may be willing to pay to avoid social media's addictive pull, but the fear of being left out can still keep them engaged, even if they're using a tool designed to help them quit. Therefore, rather than focusing on individual solutions like time limits or self-control, it may be more effective to address the social pressures that keep people engaged. This could involve encouraging alternative social activities or fostering a culture where taking a break from social media is seen as normal and desirable. Ultimately, the challenge of addressing the social media trap requires a nuanced understanding of both the individual and collective forces at play.
Users' social connection costs outweigh the harm from social media
Users may continue to use social media platforms despite recognizing their negative effects, as the cost of being left out and disconnected outweighs the harm. On the other hand, platforms can exploit this by integrating features that increase the cost of not being on the platform, further pulling users in. Platforms like Instagram and TikTok could potentially use research like this to improve their offerings and reduce negative feelings, either by making the platforms more enjoyable or easier to quit. It's important to note that users are often the product or data source for these platforms, and they may not fully understand this dynamic.
Social media use compared to crack cocaine market
People's behavior towards privacy and their use of social media can be compared to the rise and fall of the crack cocaine market. Just as children of crack cocaine users were able to observe the negative impacts and eventually cause the market to diminish, there is a possibility that social media users may also observe the damages and voluntarily step out. However, the awareness and understanding of the negative impacts of social media, especially on children, were less prevalent in the past. With changing narratives and debates, parents and legislation may become more cautious in allowing or promoting social media use. As for future research, there is an opportunity to survey time allocation and people's views on hours spent on digital products they wish didn't exist. This could provide valuable insights into people's preferences and the potential impact of digital products on their lives.
Digital revolution's unique challenges in mitigating negative effects
The digital revolution, particularly social media, presents unique challenges that may lead to harmful groupthink and make it difficult for individuals to opt out. This is unlike traditional addictive products, where avoiding them is as simple as avoiding the source. Social media's externalities can only be mitigated by consuming the product, making it a particularly challenging issue. The comparison to cigarettes highlights this problem, as avoiding second-hand smoke is as simple as avoiding smokers, but avoiding social media's negative effects requires giving up the very thing that causes them. This situation raises questions about the role of status in human behavior and whether there are diminishing marginal returns to status-seeking through digital means. The implications of these findings extend beyond prescriptive solutions and touch on broader societal issues, similar to arguments against consumer capitalism.
Understanding the potential shift in status-seeking behavior due to social media
This could have implications for regulations aimed at limiting social media use, as researchers are unsure whether people would simply transfer their status-seeking behavior to other activities or if it would decrease overall. Their paper, "When Product Markets Become Collective Traps: The Case of Social Media," offers insights into this phenomenon. While the discussion touched on the potential reasons for regulating social media use, such as ownership by foreign firms, the researchers emphasize that the primary motivation could be the negative welfare associated with social media use and the potential shift in status-seeking behavior. This is an open research question that the authors are excited to explore further.