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Choosing the Joneses: Endogenous Goals and Reference Standards

  • Falk, Armin

    ()

    (University of Bonn)

  • Knell, Markus

    ()

    (Austrian National Bank)

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 thus people tend to compare themselves to similar others. The results of a questionnaire study confirm the model’s prediction.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1152.

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Length: 24 pages
Date of creation: May 2004
Date of revision:
Publication status: published in: Scandinavian Journal of Economics, 2004, 106 (3), 417-435
Handle: RePEc:iza:izadps:dp1152
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  1. Christopher D Carroll, 1997. "Why Do the Rich Save So Much?," Economics Working Paper Archive 388, The Johns Hopkins University,Department of Economics.
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  8. Markus Knell, . "Social Comparisons, Inequality, and Growth," IEW - Working Papers 005, Institute for Empirical Research in Economics - University of Zurich.
  9. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, vol. 101(408), pages 1163-78, September.
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  11. 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.
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