Status Consumption in Networks: A Reference Dependent Approach

Yann Bramoullé and Christian Ghiglino
Authors registered in the RePEc Author Service: Yann Bramoullé

Janeway Institute Working Papers from Faculty of Economics, University of Cambridge

Abstract: We introduce loss aversion into a model of conspicuous consumption in networks. Agents allocate heterogeneous incomes between a conventional good and a status good. They interact over a connected network and compare their status consumption to their neighbors’ average consumption. We find that aversion to lying below the social reference point has a profound impact. If loss aversion is large relative to income heterogeneity, a continuum of conformist Nash equilibria emerges. Agents have the same status consumption, despite differences in incomes and network positions, and the equilibrium is indeterminate. Otherwise, there is a unique Nash equilibrium and status consumption depends on the interplay between network positions and incomes. Our analysis extends to homothetic and heterogeneous preferences.

Keywords: Conspicuous Consumption; Loss Aversion; Social Networks (search for similar items in EconPapers)
Date: 2024-03-12
New Economics Papers: this item is included in nep-upt
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Working Paper: Status Consumption in Networks: A Reference Dependent Approach (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camjip:2409

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