People seem to care not just about their own material success but how it measures up to their peers. There is probably a good evolutionary reason for this. Larry Samuelson has shown one way to formalize this idea in this paper.
But here’s a different story and one that is extremely simple. Imagine a speed skating competition with 10 competitors. Suppose that 8 of them skate their heats solo with no knowledge of the others’ times. The remaining 2 also have no knowledge of the others’ times except that they race simultaneously side by side.
Other things equal, each of the two parallel skaters has a greater than 1/10 chance of winning.
Cheap Talk 
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February 24, 2010 at 4:18 pm
Kerim Can
I didn’t understand how the part about speed skaters explains why people care about their peers’ performance.
February 24, 2010 at 7:11 pm
Anonymous
I think that there are two effects playing role here: Confidence and spirit of competition. Faced with direct competition, the skaters possibly exert more effort. But there are also confidence considerations here: If the one skater is a lot stronger than the other one, then he will be far ahead after the first lap or so. This might have a variety of effects: It could induce a confidence boost in the weaker player, leading to more effort. It could also induce a sort of ‘Tiger Woods effect’ on the weaker skater, leading to less effort. For the strong skater, this could have no effect or a confidence effect, leading to lower effort. The confidence effect could potentially outweigh the competition effect. So possibly, each of the paired ice skaters has lower effort than if skating alone, reducing the individual likelihood of winning to less than 1/10?
February 24, 2010 at 10:22 pm
jeff
I may have been a bit too mysterious.
The solo racers have only one decision to make: how fast to skate. The paired racers, at worst, could pretend they are racing solo and skate just as fast as they would if they had no information. So they must have *at least* as high probability of winning as the solo racers.
In fact it is strictly higher because they have more information that they can utilize. By watching the other skater they can see when they are falling behind and therefore certain to lose. In those cases they can take more risks by skating faster and possibly avoid losing the competition.
A solo racer cannot utilize that information.
Now think of natural selection as analogous to a race. If nature trains you to try and outperform your neighbors then you will act like the paired skaters. If nature just trains you to “do your best” without regard to relative performance, you will act like the solo skaters.
March 5, 2010 at 9:10 am
shj
would this be an example of bayes’ theorem?