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Loss Aversion and Conspicuous Consumption in Networks

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  • Bramoullé, Yann
  • Ghiglino, Christian

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.

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  • Bramoullé, Yann & Ghiglino, Christian, 2022. "Loss Aversion and Conspicuous Consumption in Networks," CEPR Discussion Papers 17181, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17181
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    Cited by:

    1. Ghiglino,C. & Langtry, A., 2023. "Status Substitution and Conspicuous Consumption," Cambridge Working Papers in Economics 2324, Faculty of Economics, University of Cambridge.
    2. Alastair Langtry & Christian Ghinglino, 2023. "Status substitution and conspicuous consumption," Papers 2303.07008, arXiv.org, revised Feb 2024.

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