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The behavior of other as a reference point

Author

Listed:
  • Francesco Bogliacino
  • Pietro Ortoleva

Abstract

We use prospect theory to model reference dependent consumers, where the reference point is the average behavior of the society in the current period. We show that after a finite number of steps under any equilibrium, the distribution of wealth will become and remain equal, or admit a missing class (a particular form of polarization). Under equilibria that admit the highest growth rates, the initial wealth distribution that maximizes this growth rate is one of perfect equality. Conversely, under equilibria that admit the lowest growth rates, perfect equality minimizes this growth rate and societies with a small level of initial inequality grow the fastest. In addition growth rates in corresponding economics without reference dependent consumers admit lower growth rates.

Suggested Citation

  • Francesco Bogliacino & Pietro Ortoleva, 2015. "The behavior of other as a reference point," Econógrafos, Escuela de Economía 022939, Universidad Nacional de Colombia, FCE, CID.
    • Handle: RePEc:col:000176:022939
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    Cited by:

    1. is not listed on IDEAS
    2. Paula Carrasco & Rodrigo Ceni & Ivone Perazzo & Gonzalo Salas, 2021. "Are Not Any Silver Linings in the Cloud? Subjective Well-being Among Deprived Young People," Journal of Happiness Studies, Springer, vol. 22(2), pages 491-516, February.
    3. Camacho, Carmen & Harmankaya, Fatih & Sağlam, Çağrı, 2020. "Social status pursuit, distribution of bequests and inequality," Economic Modelling, Elsevier, vol. 86(C), pages 183-191.
    4. Fatas, Enrique & Restrepo-Plaza, Lina, 2022. "When losses can be a gain. A large lab-in-the-field experiment on reference dependent forgiveness in Colombia," Journal of Economic Psychology, Elsevier, vol. 88(C).
    5. González-Jiménez, Víctor, 2022. "Social status and motivated beliefs," Journal of Public Economics, Elsevier, vol. 211(C).
    6. Ross, Phillip H., 2019. "Occupation aspirations, education investment, and cognitive outcomes: Evidence from Indian adolescents," World Development, Elsevier, vol. 123(C), pages 1-1.
    7. Bogliacino, Francesco & Jiménez Lozano, Laura & Grimalda, Gianluca, 2018. "Consultative democracy and trust11We thank Vanessa Carrillo, Jairo Paéz and Daniel Reyes for their help during the experiments. A special thanks to Franci Beltrán, Jairo Paéz and Alfonso Peña for providing locations to run the fieldwork. Laura Jimene," Structural Change and Economic Dynamics, Elsevier, vol. 44(C), pages 55-67.
    8. Bogliacino, Francesco & Codagnone, Cristiano, 2021. "Microfoundations, behaviour, and evolution: Evidence from experiments," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 372-385.
    9. Antonio Filippin & Luca Nunziata, 2019. "Monetary effects of inequality: lessons from the euro experiment," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 17(2), pages 99-124, June.
    10. 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.
    11. repec:cam:camjip:2409 is not listed on IDEAS
    12. Bogliacino, Francesco & Grimalda, Gianluca & Jimenez, Laura, 2017. "Consultative Democracy & Trust," MPRA Paper 82138, University Library of Munich, Germany.
    13. Francesco Bogliacino & Laura Jiménez & Gianluca Grimalda, 2015. "Consultative democracy and trust," Econógrafos, Escuela de Economía 022945, Universidad Nacional de Colombia, FCE, CID.
    14. Martini, Christina & Ibañez Diaz, Marcela & Khadjavi, Menusch, "undated". "Community Aspirations and Collective Action," GlobalFood Discussion Papers 309651, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    15. Paula Carrasco & Rodrigo Ceni & Ivonne Perazzo & Gonzalo Salas, 2019. "Are not any silver in the cloud? Subjective well-being among deprived young people," Documentos de Trabajo (working papers) 19-09, Instituto de Economía - IECON.

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    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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