Behavioural Economics Part2: Social Comparison Bias and the Economics of Anxiety

Behavioural Economics - Part 2

Social Comparison Bias and the Economics of Anxiety

Why Comparison Costs More Than We Admit

Introduction: When Comparison Becomes Invisible Pressure

In Part 1, we explored how status quietly shapes human behaviour and economic decisions.

In this part, we move deeper — into the emotional engine behind status behaviour:

👉 Social Comparison Bias

👉 And the Anxiety it silently produces

Classical economics assumes that individuals assess their position independently.

Real life shows something very different.

Humans evaluate themselves relative to others - and that comparison has a cost.

That cost is not always financial.

Very often, it is psychological anxiety.

1. What Is Social Comparison Bias? (In Simple Human Terms)

Social Comparison Bias refers to the natural tendency of humans to:

• Measure their success against others

• Evaluate worth through relative position

• Feel satisfied or dissatisfied based on comparison, not absolute condition

People rarely ask:

“Am I stable?”

They more often ask:

“Am I doing better or worse than others like me?”

This bias operates silently in:

• careers

• education

• relationships

• social media

• family expectations

👉 Key Insight:

Well-being becomes relative, not real.

2. How Social Comparison Creates Anxiety (The Missing Economic Cost)

Comparison does not remain neutral.

It creates continuous emotional monitoring.

When individuals constantly compare, they experience:

• Fear of falling behind

• Pressure to maintain image

• Anxiety of being judged

• Stress of meeting social benchmarks

This is where Economics of Anxiety emerges.

Although traditional economics does not price anxiety, humans pay for it daily through:

• poor sleep

• overworking

• emotional suppression

• unhealthy competition

• decision paralysis

👉 Anxiety becomes an invisible tax on the mind.

3. Why Anxiety Changes Economic Behaviour

An anxious individual does not behave like a rational agent.

Instead, anxiety produces:

• Risk aversion

• Avoidance of change

• Preference for familiarity

• Emotional freezing instead of action

People begin to choose:

• social approval over personal clarity

• safety over growth

• silence over expression

👉 Behavioural Economics Insight:

Humans often choose emotional safety over economic advantage.

4. Social Comparison vs Self-Worth: A Behavioural Conflict

Under constant comparison:

• Self-worth becomes externally defined

• Decisions are made to “look right,” not “feel right”

• Long-term goals are sacrificed for short-term validation

This leads to:

• overconsumption

• career anxiety

• academic stress

• relational insecurity

👉 Comparison converts choice into pressure.

5. Status Anxiety: Fear of Falling, Not Desire to Rise

Interestingly, most anxiety is not about becoming great.

It is about:

• not appearing weak

• not losing respect

• not falling below perceived norms

This explains why many people:

• stay in unsatisfying roles

• avoid new paths

• resist meaningful change

👉 Loss aversion dominates ambition.

This is a classic behavioural economics principle -

the pain of loss is stronger than the pleasure of gain.

6. Why Classical Economics Fails Here

Classical models assume:

• Stable preferences

• Clear utility

• Independent evaluation

But anxiety introduces:

• emotional distortion

• social fear

• psychological dependency

Humans do not simply maximize income or outcomes.

They try to minimize:

• embarrassment

• exclusion

• regret

• uncertainty

👉 This is bounded rationality in real life.

7. The Hidden Cost: When Anxiety Becomes Normalised

The most dangerous aspect of social comparison anxiety is this:

People stop noticing it.

Anxiety becomes routine. Pressure feels normal. Rest feels guilty.

At this stage:

• individuals stop asking why

• behaviour becomes automatic

• life is lived in reaction mode

👉 Economics without psychology cannot explain this.

Educational Reflection: Why This Matters

Understanding social comparison bias and anxiety helps us:

• explain burnout without laziness

• explain resistance without ignorance

• explain silence without weakness

This perspective:

• humanises economic behaviour

• respects emotional reality

• bridges data with dignity

Concluding Insight

Humans are not irrational.

They are emotionally protective.

They do not always chase more - 

they often try to avoid inner collapse.

That avoidance is not weakness.

It is behaviour shaped by comparison and anxiety.

Transition to Part 3 (Gentle & Honest)

In Part 3, we will explore how repeated anxiety shapes habits, identity, and long-term behaviour - and how individuals begin to internalise pressure as “normal life.”

— Rakesh Kushwaha  

Economist & Educator  

Founder, Mathivation HUB  

Mumbai, India

“The discussion draws upon established work in behavioural economics and social psychology.”

References

Festinger, L. (1954).

A Theory of Social Comparison Processes.

Human Relations, 7(2), 117–140.

(Foundational work explaining why humans evaluate themselves relative to others.)

Kahneman, D., & Tversky, A. (1979).

Prospect Theory: An Analysis of Decision under Risk.

Econometrica, 47(2), 263–291.

(Explains loss aversion — why fear of loss dominates gain, central to anxiety.)

Kahneman, D. (2011).

Thinking, Fast and Slow.

New York: Farrar, Straus and Giroux.

(Introduces bounded rationality, emotional decision-making, and cognitive bias.)

Frank, R. H. (1985).

Choosing the Right Pond: Human Behavior and the Quest for Status.

New York: Oxford University Press.

(Connects social comparison, status anxiety, and economic behaviour.)

Loewenstein, G., O’Donoghue, T., & Rabin, M. (2003).

Projection Bias in Predicting Future Utility.

The Quarterly Journal of Economics, 118(4), 1209–1248.

(Shows how emotions distort expectations and future decisions.)

Baumeister, R. F., & Leary, M. R. (1995).

The Need to Belong: Desire for Interpersonal Attachments as a Fundamental Human Motivation.

Psychological Bulletin, 117(3), 497–529.

(Explains anxiety arising from fear of exclusion and social judgment.)

Thaler, R. H. (2015).

Misbehaving: The Making of Behavioral Economics.

New York: W. W. Norton & Company.

(Narrative foundation of behavioural economics — validates human deviation from rationality.)