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Choosing the Joneses: Endogenous Goals and Reference Standards

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Author Info
Falk, Armin
Knell, Markus

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Abstract

A growing economic literature stresses the importance of relative comparisons, e.g., for savings and consumption or happiness. In this literature it is usually assumed that reference standards against which people compare themselves are exogenously given. In contrast, findings from social psychology suggest that people play an active role in determining their reference standards. We present a social comparison model where people choose their reference standards to serve motives of self-improvement and self-enhancement. The model predicts that reference standards increase in individuals’ abilities and that people therefore tend to compare themselves to similar others. The results of a questionnaire study confirm the model’s prediction.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4459.

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Date of creation: Jun 2004
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Handle: RePEc:cpr:ceprdp:4459

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Related research
Keywords: goals; happiness; reference standards; social comparison;

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Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

References listed on IDEAS
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  1. Neumark, David & Postlewaite, Andrew, 1998. "Relative income concerns and the rise in married women's employment," Journal of Public Economics, Elsevier, vol. 70(1), pages 157-183, October. [Downloadable!] (restricted)
    Other versions:
  2. John Y. Campbell & John H. Cochrane, 1994. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," CRSP working papers 412, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
    Other versions:
  3. Christopher D. Carroll, 1998. "Why Do the Rich Save So Much?," NBER Working Papers 6549, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September. [Downloadable!] (restricted)
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  5. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June. [Downloadable!] (restricted)
  6. Boskin, Michael J & Sheshinski, Eytan, 1978. "Optimal Redistributive Taxation when Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 589-601, November. [Downloadable!] (restricted)
  7. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, vol. 101(408), pages 1163-78, September. [Downloadable!] (restricted)
  8. Cooper, Ben & Garcia-Penalosa, Cecilia & Funk, Peter, 2001. "Status Effects and Negative Utility Growth," Economic Journal, Royal Economic Society, vol. 111(473), pages 642-65, July. [Downloadable!] (restricted)
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  9. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April. [Downloadable!] (restricted)
  10. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December. [Downloadable!] (restricted)
  11. Uri Gneezy & Muriel Niederle & Aldo Rustichini, 2003. "Performance In Competitive Environments: Gender Differences," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 1049-1074, August. [Downloadable!] (restricted)
  12. Robert MacCulloch, 2001. "What Makes a Revolution?," STICERD - Development Economics Papers 30, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  13. Markus Knell, 1999. "Social Comparisons, Inequality, and Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 664-, December.
    Other versions:
  14. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kohei Daido & Hideshi Itoh, 2005. "The Pygmalion Effect: An Agency Model with Reference Dependent Preferences," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Alessandro Balestrino, . "Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect," EPRU Working Paper Series 05-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Dec 2005. [Downloadable!]
    Other versions:
  3. Richard Barnett & Joydeep Bhattacharya & Helle Bunzel, 2008. "Choosing to keep up with the Joneses," Economics Working Papers 2008-01, School of Economics and Management, University of Aarhus. [Downloadable!]
  4. Livio Stracca & Ali al-Nowaihi, 2005. "Keeping up with the Joneses, reference dependence, and equilibrium indeterminacy," Working Paper Series 444, European Central Bank. [Downloadable!]
  5. Andrea Patacconi & Florian Ederer, MIT, 2005. "Interpersonal Comparison, Status and Ambition in Organisations," Economics Series Working Papers 222, University of Oxford, Department of Economics. [Downloadable!]
  6. Liam Delaney & Carol Newman & Brian Nolan, 2006. "Reference Dependent Financial Satisfaction over the Course of the Celtic Tiger: A Panel Analysis Utilising the Living in Ireland Survey 1994-2001," Trinity Economics Papers tep200611, Trinity College Dublin, Department of Economics. [Downloadable!]
  7. Kuhnen, Camelia M. & Tymula, Agnieszka, 2008. "Rank expectations, feedback and social hierarchies," MPRA Paper 13428, University Library of Munich, Germany, revised Jan 2009. [Downloadable!]
  8. Claudia Senik, 2007. "Direct Evidence on Income Comparisons and their Welfare Effects," IZA Discussion Papers 3195, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  9. Tournemaine, frederic & Tsoukis, Chris, 2008. "Status, endogenous reference standards, and the growth-inequality relation: A note," MPRA Paper 10420, University Library of Munich, Germany. [Downloadable!]
  10. repec:ese:iserwp: is not listed on IDEAS
  11. Boyce, Christopher J. & Brown, Gordon D.A., 2008. "Income Rank and Upward Comparisons," The Warwick Economics Research Paper Series (TWERPS) 883, University of Warwick, Department of Economics. [Downloadable!]
  12. Carlsson, Fredrik & Gupta, Gautam & Johansson-Stenman, Olof, 2005. "Keeping Up with the Vaishyas: Caste and Relative Standing," Working Papers in Economics 171, Göteborg University, Department of Economics. [Downloadable!]
  13. Andrew E. Clark & Claudia Senik, 2008. "Who compares to whom? The anatomy of income comparisons in Europe," PSE Working Papers 2008-65, PSE (Ecole normale supérieure), revised Sep 2009. [Downloadable!]
    Other versions:
  14. Andersson, Fredrik W., 2006. "Is Concern for Relative Consumption a Function of Relative Consumption?," Working Papers in Economics 220, Göteborg University, Department of Economics. [Downloadable!]
  15. George J. Bratsiotis & Baochun Peng, 2006. "Social Interaction and Effort in a Success-at-Work Augmented Utility Model," Centre for Growth and Business Cycle Research Discussion Paper Series 86, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  16. repec:tcd:wpaper:tep11 is not listed on IDEAS
  17. Liam Delaney & Carol Newman & Brian Nolan, 2006. "Reference Dependent Financial Satification over the Course of the Celtic Tiger : A Panel Analysis Utilising the Living in Ireland Survey 1994-2001," Working Papers 200609, Geary Institute, University College Dublin. [Downloadable!]
  18. Khalil, Elias, 2008. "The Bayesian Fallacy: Distinguishing Four Kinds of Beliefs," MPRA Paper 8474, University Library of Munich, Germany, revised 26 Apr 2008. [Downloadable!]
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