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Status Consumption in Networks: A Reference Dependent Approach

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  • Bramoullé, Y.
  • Ghiglino, C.

Abstract

We introduce loss aversion into a model of conspicuous consumption in networks. Agents allocate heterogeneous incomes between a conventional good and a status good. They interact over a connected network and compare their status consumption to their neighbors’ average consumption. We find that aversion to lying below the social reference point has a profound impact. If loss aversion is large relative to income heterogeneity, a continuum of conformist Nash equilibria emerges. Agents have the same status consumption, despite differences in incomes and network positions, and the equilibrium is indeterminate. Otherwise, there is a unique Nash equilibrium and status consumption depends on the interplay between network positions and incomes. Our analysis extends to homothetic and heterogeneous preferences.

Suggested Citation

  • Bramoullé, Y. & Ghiglino, C., 2024. "Status Consumption in Networks: A Reference Dependent Approach," Cambridge Working Papers in Economics 2414, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:2414
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    Keywords

    Conspicuous Consumption; Loss Aversion; Social Networks;
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