Why does a manager whose annual bonus set a record lose sleep upon hearing that a peer of the same rank received slightly more? The research answer is clear: our brain and mind measure reward relative to others, not in absolute terms. Learning what others earn reduces satisfaction among those who are behind, but it does not increase satisfaction among those who are ahead. Freud called this sensitivity the “narcissism of small differences.” This article shows how peer comparison shapes decisions of senior executives and investors, and what can be done.
Why Does a Peer’s Pay Feel More Important Than Our Own?
Card, Mas, Moretti, and Saez (2012) conducted a field experiment at the University of California in which a random group of employees was told about a website showing the salaries of all employees. The information doubled the number of users of the site, and most of them viewed the salaries of colleagues in the same unit. The result was asymmetric: those whose pay was below the median for their unit and job category reported lower pay and job satisfaction, and their likelihood of searching for a new job increased significantly; those above the median did not report greater satisfaction.
For boards and human-resources leaders the message is clear: pay transparency without managing comparison can push below-median employees toward the exit while creating no additional motivation for stars.
Identical chairs around one table: among those most alike, the smallest difference in rank or reward creates the greatest sensitivity. — Image: Adrian C / Pexels
How Does the Brain Process Another Person’s Reward?
Fliessbach et al. (2007) placed two people simultaneously in two adjacent MRI scanners to perform a simple task with monetary rewards. When the amount paid to the comparison person changed, the response of the ventral striatum—a part of the brain’s reward circuit—also changed in the other person. This study provided neurobiological evidence that social comparison is involved in reward processing itself, not only in conscious judgment.
In capital markets, the same mechanism may appear: a fund manager who has earned a good return but has fallen behind a direct competitor may accept more risk in order to compensate. His or her measure of success is not actual return but distance from a peer. [needs further review: this link to fund manager behavior is not directly extracted from the studies cited here and is an analytical inference.]
What Does Relative Deprivation Cost for Health and Life?
Kuo et al. (2025) examined three waves of longitudinal data from 3,413 adults in Taiwan. Relative deprivation—feeling behind others in income—was negatively associated with 15 of 16 human flourishing outcomes, including general and mental health, happiness, life satisfaction, meaning, character, social relationships, and financial stability; only loneliness showed no association. The strongest associations were with life satisfaction, job satisfaction, and financial outcomes. Wu et al. (2025) showed that wealth comparison with family, friends, and the internet were all associated with lower well-being, and comparison with friends had the strongest effect.
In markets a good return is not enough; falling behind a direct rival is what pushes a manager toward more risk. — Image: Alesia Kozik / Pexels
What Does Freud Say About Competition with Those Closest to Us?
Freud, in Civilization and Its Discontents (1930; SE vol. 21), described the concept of the “narcissism of small differences”: communities that are adjacent and alike in every respect show the greatest competition and hostility over small differences. Earlier, in Group Psychology and the Analysis of the Ego (1921; SE vol. 18), he had shown that the same sensitivity appears in close relationships, from family to colleagues. This insight aligns directly with today’s findings: a manager compares himself or herself with an MBA classmate or a counterpart at a rival firm, not with distant giants, and the pain of comparison with the closest peer is the greatest of all.
From a psychoanalytic perspective, a peer’s bonus wounds our narcissistic image of being “unmatched.” The task of mature leadership is to recognize this wound and not allow strategic decisions—from investment risk to leaving a good job—to be taken from it.
Why does learning colleagues’ pay reduce job satisfaction?
In Card et al. (2012), those whose pay was below the median of same-rank colleagues reported lower satisfaction after seeing others’ pay and were more likely to think about searching for a new job; those above the median did not become happier. Comparison is asymmetric: falling behind hurts, while being ahead brings little pleasure.
Does the brain really measure reward relatively?
Yes. Fliessbach et al. (2007) used fMRI to show that changing the amount paid to a comparison person altered the ventral striatum response, part of the brain’s reward circuit. Thus even when one’s own reward is constant, another person’s reward changes the experience.
What effect does relative deprivation have on health and life?
Kuo et al. (2025) found in longitudinal data from 3,413 adults in Taiwan that relative deprivation had a negative association with 15 of 16 human flourishing outcomes, from mental health to meaning and relationships; strongest associations were with life satisfaction, job satisfaction, and financial outcomes.
How does Freud explain competition with closest colleagues?
Freud called it the “narcissism of small differences”: people and groups that are most similar show the greatest sensitivity and competition over the smallest differences. Therefore a manager compares himself or herself with a same-school peer, not with a distant billionaire.
Conclusion: From Comparison to an Inner Standard
Peer comparison is part of human nature, and the brain registers it in the reward circuit itself. But a manager who understands this mechanism can shift the measure of success from “distance from another person” to “progress toward my own goal,” pair pay transparency with dialogue and a clear growth path, and keep major decisions separate from narcissistic injury. This understanding brings greater calm and better decisions.
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Card D, Mas A, Moretti E, Saez E. Inequality at Work: The Effect of Peer Salaries on Job Satisfaction. Am Econ Rev. 2012;102(6):2981-3003. DOI: 10.1257/aer.102.6.2981
Fliessbach K, Weber B, Trautner P, et al. Social comparison affects reward-related brain activity in the human ventral striatum. Science. 2007;318(5854):1305-1308. PMID: 18033886. DOI: 10.1126/science.1145876
Kuo CT, Hsieh SH, Liao PS, Kawachi I. Relative deprivation and subsequent health, happiness, and human flourishing: A longitudinal outcome-wide analysis. Soc Sci Med. 2025;384:118537. PMID: 40957375. DOI: 10.1016/j.socscimed.2025.118537
Wu Y, Tang Q, Huang Z, et al. Wealth comparison across social distances: implications for well-being. Front Psychol. 2025;16:1661009. PMID: 41383418. DOI: 10.3389/fpsyg.2025.1661009
Freud S. (1921). Group Psychology and the Analysis of the Ego. In: Strachey J, ed. The Standard Edition of the Complete Psychological Works of Sigmund Freud, Vol. 18. London: Hogarth Press: 65-143.
Freud S. (1930). Civilization and Its Discontents. In: Strachey J, ed. The Standard Edition of the Complete Psychological Works of Sigmund Freud, Vol. 21. London: Hogarth Press: 57-145.
Image Credits
Featured image — Photo: cottonbro studio / Pexels. In-text images — Photo: Adrian C / Pexels; Photo: Alesia Kozik / Pexels.
