An Exchange Theory of Money and Self-Esteem in Decision Making

Abstract

This article addresses the relationship between money and self-esteem, both of which human beings desire. Money is used to purchase products. It may also indicate its owner's competence. Self-esteem is the subjective evaluation of the self, and people want to maintain their good self-image. The exchange between money and self-esteem may follow 3 principles: augmentation, substitution, and competition. A superior payoff augments utility of self-esteem. Money and self-esteem partially compensate for one another when an option contains an abundance of one type of utility and lacks the other. Money and self-esteem compete against each other when decision makers have to choose between the two. Empirical evidence has shown that meaning of money, situational need for money, self-esteem boost, and ego threat influence the exchange between money and self-esteem. The theory presented in this article bridges research in psychology and findings in economics and provides an integrative perspective on understanding human decision making.