Globe and Mail Report on Business Magazine June 24, 2010
Facing down a world wracked with financial turmoil, Mark Carney brings many strengths to the table on behalf of Canadians: Harvard and Oxford training, years of experience in the private sector at Goldman Sachs. But Carney may also have another, less obvious competitive advantage: The current Governor of the Bank of Canada happens to photograph very well.
We’ve known for many years that good-looking people hold a special sway in the marketplace. As far back as 1994, a study by Daniel Hamermesh and Jeff Biddle (from the University of Texas and Michigan State, respectively) proved the existence of a “beauty premium”-in other words, attractive people tend to command higher salaries than their average-looking peers. The researchers based their study on data from the United States and Canada, but have since found similar results in the United Kingdom, Holland and China.
But why beauty premiums exist has always been a complicated issue. Sure, we like being around attractive people. But in competitive environments, it seems unlikely we’d happily pay for this privilege unless there was some other value added.
One suggestion is that income is less associated with looks than it is with self-confidence, to which good looks tend to contribute. At least, that was the conclusion of a Penn Institute for Economic Research study, published in 2004, on the correlation between height and income. The researchers confirmed that tall adults earned more. But they also found that tall adults who were short in high school did not earn a premium, while adults who were tall in adolescence did. Since we tend to develop our sense of self-esteem during our teenaged years, this data support the theory that good looks and height are associated with premium wages because having those qualities when we’re young contributes to a lifelong sense of self-confidence. The marketplace, in this explanation of the beauty premium, rewards good-looking people for presenting and carrying themselves well.
That theory remains paradoxical, however, because presentation does not equal performance. Just because a person is cocky does not mean they’re competent. The explanation, then, could be that the rest of us are gullible. Markus Mobius of Harvard and Tanya Rosenblat of Wesleyan University explored this notion in their 2006 paper “Why beauty matters.” They found that good-looking people were indeed no more capable or productive at a simple maze-solving puzzle, yet, regardless of their skill, they tended to rate their chances of success much higher than average-looking people. Put simply, pretty people buy their own hype. And, crucially, so do employers, who in the same study consistently predicted higher productivity rates for good-looking candidates than for less attractive ones.
This version of the story isn’t very flattering to anyone, but it’s especially uncomplimentary to those living in North America, where beauty premiums for men and women run at 4% to 5%, according to Hamermesh and Biddle. (A 2004 study, published by the Journal of Applied Psychology, pegs the premium at an extra $789 annually per inch of height-meaning that if you’re six feet tall and your college buddy is only 5 foot 8, you’ll have earned $65,000 more than him before you meet up at your 20th class reunion.) It remains an open question as to why beauty premiums are only 1% in the U.K. Perhaps beauty and self-confidence are less persuasive there than a good family name. By the same reasoning, you’d expect North American culture-supposedly oriented to individual accomplishment and merit-to be less influenced by an attribute based on dumb genetic luck.
Both of these explanations of the beauty premium-call them the Self-Confidence Trick and the Gullibility Gap-lead to paradoxes that may suggest a third explanation entirely. Perhaps the market is efficient after all, because a real return is being generated for the beauty premium-only it’s in a currency that has so-far defied our ability to measure it. I’m referring to the possibility that we pay for beauty because we are prepared to pay for hope, just as we do when we buy lottery tickets. In this case, we’re paying a premium to convince ourselves that those we admire for being beautiful do indeed warrant admiration for being as good as they seem to think they are.
In this analysis, the beauty premium could be thought of as a kind of placebo effect, where some real value actually does derive from nothing. It simply makes us feel better, as much as science (or economics) tells us it shouldn’t. Which carries a certain intuitive elegance anyway, when we consider where the modern placebo story originated. Apparently an Allied army nurse in southern Italy, under heavy German bombardment and in the absence of morphine supplies, was able to relieve an injured soldier’s agony and prevent the onset of shock by administering a syringe full of saline solution.
A clear market inefficiency, unless of course you imagine – through that soldier’s eyes, at that particular moment – how beautiful that nurse must have been.