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Loss Aversion and Conspicuous Consumption in Networks

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  • Yann Bramoullé

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Christian Ghiglino

    (Essex Pathways, University of Essex - University of Essex)

Abstract

We introduce loss aversion into a model of conspicuous consumption in networks. Agents allocate their income between a standard good and a status good to maximize a Cobb-Douglas utility. Agents interact over a connected network and compare their status consumption to their neighbors' average consumption. Loss aversion has a profound impact. If loss aversion is large enough relative to income heterogeneity, a continuum of Nash equilibria appears and all agents consume the same quantity of status good. Otherwise, there is a unique Nash equilibrium and richest agents earn strict status gains while poorest agents earn strict status losses.

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  • Yann Bramoullé & Christian Ghiglino, 2022. "Loss Aversion and Conspicuous Consumption in Networks," Working Papers hal-03630455, HAL.
    • Handle: RePEc:hal:wpaper:hal-03630455
    Note: View the original document on HAL open archive server: https://amu.hal.science/hal-03630455
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    Cited by:

    1. Ghiglino,C. & Langtry, A., 2023. "Status Substitution and Conspicuous Consumption," Cambridge Working Papers in Economics 2324, Faculty of Economics, University of Cambridge.
    2. Alastair Langtry & Christian Ghinglino, 2023. "Status substitution and conspicuous consumption," Papers 2303.07008, arXiv.org, revised Feb 2024.

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    Keywords

    Loss Aversion; Conspicuous Consumption; Social Networks;
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