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Choosing the Joneses: Endogenous Goals and Reference Standards

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  • Armin Falk
  • Markus Knell

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 introduce 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 thus tend to compare themselves to similar others. The results of a questionnaire study confirm the prediction of the model. Copyright The editors of the "Scandinavian Journal of Economics", 2004 .

Suggested Citation

  • Armin Falk & Markus Knell, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 417-435, October.
  • Handle: RePEc:bla:scandj:v:106:y:2004:i:3:p:417-435
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    References listed on IDEAS

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    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
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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