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Choosing the Joneses: Endogenous Goals and Reference Standards

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  • Falk, Armin
  • Knell, Markus

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.

Suggested Citation

  • Falk, Armin & Knell, Markus, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," CEPR Discussion Papers 4459, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4459
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    More about this item

    Keywords

    goals; happiness; reference standards; social comparison;
    All these keywords.

    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

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