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Social Decision Theory: Choosing within and between Groups

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  • Fabio Maccheroni
  • Massimo Marinacci
  • Aldo Rustichini

Abstract

We study the behavioural foundation of interdependent preferences, where the outcomes of others affect the welfare of the decision maker. These preferences are taken as given, not derived from more primitive ones. Our aim is to establish an axiomatic foundation providing the link between observation of choices and a functional representation which is convenient, free of inconsistencies and can provide the basis for measurement. The dependence among preferences may take place in two conceptually different ways, expressing two different views of the nature of interdependent preferences. The first is Festinger's view that the evaluation of peers' outcomes is useful to improve individual choices by learning from the comparison. The second is Veblen's view that interdependent preferences keep track of social status derived from a social value attributed to the goods one consumes. Corresponding to these two different views, we have two different formulations. In the first, the decision maker values his outcomes and those of others on the basis of his own utility. In the second, he ranks outcomes according to a social value function. We give different axiomatic foundations to these two different, but complementary, views of the nature of the interdependence. On the basis of this axiomatic foundation, we build a behavioural theory of comparative statics within subjects and across subjects. We characterize preferences according to the relative importance assigned to gains and losses in social domain, that is pride and envy. This parallels the standard analysis of private gains and losses (as well as that of regret and relief). We give an axiomatic foundation of interpersonal comparison of preferences, ordering individuals according to their sensitivity to social ranking. These characterizations provide the behavioural foundation for applied analysis of market and game equilibria with interdependent preferences. Copyright , Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Review of Economic Studies.

Volume (Year): 79 (2012)
Issue (Month): 4 ()
Pages: 1591-1636

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Handle: RePEc:oup:restud:v:79:y:2012:i:4:p:1591-1636

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Citations

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Cited by:
  1. Joel Sobel, 2009. "Generous actors, selfish actions: markets with other-regarding preferences," International Review of Economics, Springer, Springer, vol. 56(1), pages 3-16, March.
  2. Burnham, Terence C., 2013. "Toward a neo-Darwinian synthesis of neoclassical and behavioral economics," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 90(S), pages S113-S127.
  3. Astrid Gamba & Elena Manzoni, 2014. "Social comparison and risk taking behavior," Working Papers, University of Milano-Bicocca, Department of Economics 266, University of Milano-Bicocca, Department of Economics, revised Jan 2014.
  4. Sushil Bikhchandani & Uzi Segal, 2009. "Transitive Regret," Boston College Working Papers in Economics, Boston College Department of Economics 711, Boston College Department of Economics, revised 24 Oct 2009.
  5. Lahno, Amrei M. & Serra-Garcia, Marta, 2012. "Peer Effects in Risk Taking," Discussion Papers in Economics, University of Munich, Department of Economics 14309, University of Munich, Department of Economics.
  6. Jan-Dirk Schmöcker & Tsuyoshi Hatori & David Watling, 2014. "Dynamic process model of mass effects on travel demand," Transportation, Springer, Springer, vol. 41(2), pages 279-304, March.
  7. Martin Dufwenberg & Paul Heidhues & Georg Kirchsteiger & Frank Riedel & Joel Sobel, 2011. "Other-Regarding Preferences in General Equilibrium," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 78(2), pages 613-639.
  8. Kircher, Philipp & Sandroni, Alvaro & Ludwig, Sandra, 2009. "Fairness: A Critique to the Utilitarian Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 288, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  9. Zhang, W.-B., 2014. "Ethnic Human Capital Externalities and Inequality in a General Equilibrium Growth Model," Journal of the New Economic Association, New Economic Association, New Economic Association, vol. 21(1), pages 33-54.

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