Loss Aversion and Conspicuous Consumption in Networks

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

No 17181, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We introduce loss aversion into a model of conspicuous consumption in networks. Agents allocate their income between a standard good and a status good to maximize a Cobb-Douglas utility. Agents interact over a connected network and compare their status consumption to their neighbors’ average consumption. Loss aversion has a profound impact. If loss aversion is large enough relative to income heterogeneity, a continuum of Nash equilibria appears and all agents consume the same quantity of status good. Otherwise, there is a unique Nash equilibrium and richest agents earn strict status gains while poorest agents earn strict status losses.

Keywords: Loss aversion; Conspicuous consumption; Social Networks (search for similar items in EconPapers)
Date: 2022-04
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Working Paper: Loss Aversion and Conspicuous Consumption in Networks (2022)
Working Paper: Loss Aversion and Conspicuous Consumption in Networks (2022)
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