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Loss Aversion and Conspicuous Consumption in Networks

Yann Bramoullé () and Christian Ghiglino ()

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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: 2022-04-05
New Economics Papers: this item is included in nep-gth, nep-mic, nep-net and nep-upt
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