(3/5/21) the honesty of wallets

revealed preferences vs. hollow virtue signaling

Here is how I think about money:

Money is a highly divisible form of revealing one’s preferences.

Because it is more scarce, people tend to spend money more honestly and carefully than they spend their words and attention spans.

Intuitively, this is the difference between giving a friend’s new project a like on social media versus actually paying $20 for it.

We willingly part with money if we get something of equal or greater expected value in exchange. Whereas we allow all sorts of objects to enter our speech and thought streams without much filtration.

Anyone can say that they care, and we may even think we care. But look at our ledgers and we’ll see our revealed preferences. They are a window into our underlying values.


I first learned this while working at Morning Consult, one of the first companies to run public opinion polls online rather than via phone banks.

In 2017, security guards dragged a Vietnamese-American man off a United Airlines aircraft for refusing to give up his seat on a fully booked flight. Outrage ensued and United dominated the news cycle. Morning Consult’s daily polls indicated a sharp drop in United’s favorability among Americans.

…Yet within a couple months, respondents were just as willing to pay to fly United as they were pre-scandal.

Within a few months, United’s favorability ratings returned to their pre-scandal levels. Over the 2017 calendar year, United’s stock price increased 15%.

Money revealed preferences that the virtue signaling did not.

In the aptly named piece The United Scandal That Wasn’t, Morning Consult writer Joanna Piecenza put it this way:

“[…] scandals aside, consumers think more with their wallets than their hearts.”

I’m not saying anything about what should have happened — I’m just looking at what actually happened. Maybe if there were more airline alternatives, people would more readily shift spending away from United. Maybe people considered the case an isolated incident, even if it was shocking. We now start entering the realm of price sensitivity, market gaps, entrepreneurship, and human behavior. Things get complex and multivariate.


Here’s a more recent example.

Last June, in the wake of the George Floyd murder, the Minneapolis City Council voted to disband the city police department. That proposal ultimately led to $8 million of police funding getting diverted to other essential city services. The Minneapolis police force reduced its headcount by 200.

A couple weeks ago, this same city council voted unanimously to fund the police with an additional $6.4 million after public outcry over rising levels of crime in Minneapolis.

Money revealed preferences that the virtue signaling did not. Simply getting rid of cops didn’t result in what people wanted. So back to the drawing board.

It’s not such a binary situation, either.

In 2015, Baltimore “defunded” its police after a series of protests. The police drastically reduced their presence in West Baltimore. Murders subsequently increased.

In 2012, Camden disbanded its police to generally positive effect, but the lesson here was more nuanced than getting rid of cops.

This might be very upsetting to read for some of us. But our seeming hypocrisy — the difference between how we vote with our voices versus with our money — does not necessarily mean we’re bad people.

It means that our preferences are multivariate and highly contextual. Seeing how and why we spend money starts to paint a very rich picture of what’s going on. It’s still an incomplete picture, but it gets us asking more interesting questions. As Rory Sutherland wrote in his great book Alchemy:

“What people do with their own money (their ‘revealed preferences’) is generally a better guide to what they really want than their own reported wants and needs.”


What are the implications of this on software, design, and everything else? I’m just starting to scratch the surface of understanding that, so I’ll stop here and share some related reading.

Cedric Chin - The Games People Play with Cash Flow: There’s a really cool story in here about a restauranteur charging patrons a fee to reserve a table and using that money to get bulk discounts on meat orders. “People with limited understanding of business think that business is all about making profits. But those who actually run businesses know that running a business is all about managing cash flows.”

Julian Shapiro - Value Propositions: “[Understanding value propositions] ensures you remain focused on the benefits that resonate with customers— instead of on those that customers don't actually experience in the real world.”

Taylor Pearson - Chesterton Fences and Gordian Knots: “If failure is cheap or easy to recover from, then optimize for efficiency. […] If failure is costly and hard to recover from, then robustness is more important.”

Rory Sutherland - Alchemy (book): One of the best books I’ve read in recent years. “We discovered that problems almost always have a plethora of seemingly irrational solutions waiting to be discovered, but that nobody is looking for them; everyone is too preoccupied with logic to look anywhere else.”

Have a great weekend, everyone!