IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Social Decision Theory: Choosing within and between Groups

  • Fabio Maccheroni
  • Massimo Marinacci
  • Aldo Rustichini

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1093/restud/rds006
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

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

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

as
in new window

Handle: RePEc:oup:restud:v:79:y:2012:i:4:p:1591-1636
Contact details of provider:

References listed on IDEAS
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.:

as in new window
  1. 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.
  2. David Neumark & Andrew Postlewaite, 1995. "Relative Income Concerns and the Rise in Married Women's Employment," NBER Working Papers 5044, National Bureau of Economic Research, Inc.
  3. Gali, J., 1992. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice and Asset Prices," Papers 92-22, Columbia - Graduate School of Business.
  4. Mui, Vai-Lam, 1995. "The economics of envy," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 311-336, May.
  5. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
  6. Blomquist, N.S., 1991. "Interdependent Behavio and the Effect of Taxes," Papers 1991f, Uppsala - Working Paper Series.
  7. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
  8. Fershtman, Chaim & Weiss, Yoram, 1993. "Social Status, Culture and Economic Performance," Economic Journal, Royal Economic Society, vol. 103(419), pages 946-59, July.
  9. Faruk Gul & Wolfgang Pesendorfer, 2006. "The Canonical Type Space for Interdependent Preferences," Levine's Bibliography 321307000000000457, UCLA Department of Economics.
  10. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  11. Bruno S. Frey & Alois Stutzer, . "What can Economists Learn from Happiness Research?," IEW - Working Papers 080, Institute for Empirical Research in Economics - University of Zurich.
  12. George J. Mailath & Andrew Postlewaite, 2006. "Social Assets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1057-1091, November.
    • George J. Mailath & Andrew Postlewaite, 2002. "Social Assets," PIER Working Paper Archive 04-025, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 04 Jun 2004.
    • George J. Mailath & Andrew Postlewaite, 2002. "Social Assets," PIER Working Paper Archive 06-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 04 Jun 2004.
  13. Luis Rayo & Gary S. Becker, 2007. "Evolutionary Efficiency and Happiness," Journal of Political Economy, University of Chicago Press, vol. 115, pages 302-337.
  14. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 1996. "Class systems and the enforcement of social norms," Staff Report 213, Federal Reserve Bank of Minneapolis.
  15. Clark, Andrew E. & Oswald, Andrew J., 1994. "Satisfaction and comparison income," CEPREMAP Working Papers (Couverture Orange) 9408, CEPREMAP.
  16. Ng, Yew-Kwang, 1987. "Relative-Income Effects and the Appropriate Level of Public Expenditure," Oxford Economic Papers, Oxford University Press, vol. 39(2), pages 293-300, June.
  17. Brock,W.A. & Durlauf,S.N., 2000. "Discrete choice with social interactions," Working papers 7, Wisconsin Madison - Social Systems.
  18. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 01-90, Wharton School Rodney L. White Center for Financial Research.
  19. Kapteyn, A. & Van De Ger, S. & Van De Stadt, H. & Wansbeek, T., 1989. "Interdependent Preferences: An Econometric Analysis," Papers 8954, Tilburg - Center for Economic Research.
  20. Postlewaite, Andrew, 1998. "The social basis of interdependent preferences," European Economic Review, Elsevier, vol. 42(3-5), pages 779-800, May.
  21. Binder, Michael & Pesaran, M. Hashem, 2001. "Life-cycle consumption under social interactions," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 35-83, January.
  22. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
  23. Yoram Weiss, 1974. "The Wealth Effect in Occupational Choice," NBER Working Papers 0028, National Bureau of Economic Research, Inc.
  24. Segal, Uzi & Sobel, Joel, 2007. "Tit for tat: Foundations of preferences for reciprocity in strategic settings," Journal of Economic Theory, Elsevier, vol. 136(1), pages 197-216, September.
  25. William Neilson, 2006. "Axiomatic reference-dependence in behavior toward others and toward risk," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 681-692, 08.
  26. Pesendorfer, Wolfgang, 1995. "Design Innovation and Fashion Cycles," American Economic Review, American Economic Association, vol. 85(4), pages 771-92, September.
  27. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
  28. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . ""Incorporating Concern for Relative Wealth into Economic Models''," CARESS Working Papres 95-14, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  29. Anand M. Goel & Anjan V. Thakor, 2005. "Green with Envy: Implications for Corporate Investment Distortions," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2255-2288, November.
  30. Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  31. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
  32. Todd Sarver, 2008. "Anticipating Regret: Why Fewer Options May Be Better," Econometrica, Econometric Society, vol. 76(2), pages 263-305, 03.
  33. Kockesen, Levent & Ok, Efe A., 1997. "Negatively Interdependent Preferences," Working Papers 97-02, C.V. Starr Center for Applied Economics, New York University.
  34. Michael J. Boskin & Eytan Sheshinski, 1978. "Optimal Redistributive Taxation When Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 589-601.
  35. John Y. Campbell & John H. Cochrane, 1994. "By force of habit: a consumption-based explanation of aggregate stock market behavior," Working Papers 94-17, Federal Reserve Bank of Philadelphia.
  36. Basu, Kaushik, 1989. "A Theory of Association: Social Status, Prices and Markets," Oxford Economic Papers, Oxford University Press, vol. 41(4), pages 653-71, October.
  37. Serge-Christophe Kolm, 1995. "The Economics Of Social Sentiments: The Case Of Envy," The Japanese Economic Review, Japanese Economic Association, vol. 46(1), pages 63-87, 03.
  38. Gary S. Becker & Kevin M. Murphy & Ivan Werning, 2005. "The Equilibrium Distribution of Income and the Market for Status," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 282-310, April.
  39. Itzhak Gilboa & David Schmeidler, 2001. "A cognitive model of individual well-being," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 18(2), pages 269-288.
  40. van de Stadt, Huib & Kapteyn, Arie & van de Geer, Sara, 1985. "The Relativity of Utility: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 179-87, May.
  41. Weiss, Y. & Fershtman, C., 1997. "Social Status and Economic Performance: A Survey," Papers 19-97, Tel Aviv.
  42. Ireland, Norman J., 1994. "On limiting the market for status signals," Journal of Public Economics, Elsevier, vol. 53(1), pages 91-110, January.
  43. Bagwell, Laurie Simon & Bernheim, B Douglas, 1996. "Veblen Effects in a Theory of Conspicuous Consumption," American Economic Review, American Economic Association, vol. 86(3), pages 349-73, June.
  44. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, vol. 60(4), pages 837-57, July.
  45. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
  46. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
  47. Andrew B. Abel, 1998. "Risk Premia and Term Premia in General Equilibrium," NBER Working Papers 6683, National Bureau of Economic Research, Inc.
  48. Robert H. Frank, 1984. "Interdependent Preferences and the Competitive Wage Structure," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 510-520, Winter.
  49. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
  50. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  51. Yeung Lewis Chan & Leonid Kogan, 2002. "Catching Up with the Joneses: Heterogeneous Preferences and the Dynamics of Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1255-1285, December.
  52. Villar, Antonio, 1988. "On the existence of Pareto optimal allocations when individual welfare depends on relative consumption," Journal of Public Economics, Elsevier, vol. 36(3), pages 387-397, August.
  53. Carroll, Christopher D & Overland, Jody & Weil, David N, 1997. "Comparison Utility in a Growth Model," Journal of Economic Growth, Springer, vol. 2(4), pages 339-67, December.
  54. Arthur J. Robson, 2001. "The Biological Basis of Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 39(1), pages 11-33, March.
  55. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
  56. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  57. Edi Karni & Zvi Safra, 2002. "Individual Sense of Justice: A Utility Representation," Econometrica, Econometric Society, vol. 70(1), pages 263-284, January.
  58. Andrew B. Abel, 2005. "Optimal Taxation when Consumers Have Endogenous Benchmark Levels of Consumption," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 21-42.
  59. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February.
  60. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
  61. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
  62. Balder, Erik J, 1995. "A Unifying Approach to Existence of Nash Equilibrium," International Journal of Game Theory, Springer;Game Theory Society, vol. 24(1), pages 79-94.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:79:y:2012:i:4:p:1591-1636. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.