Equal monetary differences loom larger when the ratio of the amounts is greater

Evidence

Psychophysics is the study of the functional relation between the physical and the psychological value of attributes such as size, brightness, or loudness. A utility function for money, therefore, can also be viewed as a psychophysical scale relating the objective to the subjective value of money. Recall that a concave value function for gains of the form depicted in Figure 14.1 implies that a difference between 100 and 200 looms larger than the objectively equal difference between 200 and 300. More generally, the ratio-difference principle says that the impact of any fixed positive difference between two amounts increases with their ratio. — John T. Jost and Jim Sidanius, Political Psychology, 2472

Categorization

• DEFINE: Defines the ratio-difference principle and frames utility-of-money functions as psychophysical scales.
• XREF: Connects to prospect theory/Kahneman-Tversky loss aversion framing already central to this book’s implicit economics material.