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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, 1998. "Why Do the Rich Save So Much?," NBER Working Papers 6549, National Bureau of Economic Research, Inc.
  2. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April.
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  7. David Neumark & Andrew Postlewaite, 1995. "Relative Income Concerns and the Rise in Married Women's Employment," NBER Working Papers 5044, National Bureau of Economic Research, Inc.
  8. Uri Gneezy & Muriel Niederle & Aldo Rustichini, 2003. "Performance In Competitive Environments: Gender Differences," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 1049-1074, August.
  9. Boskin, Michael J & Sheshinski, Eytan, 1978. "Optimal Redistributive Taxation when Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 589-601, November.
  10. Andrew E. Clark and Andrew J. Oswald, . "Satisfaction and Comparison Income," Economics Discussion Papers 419, University of Essex, Department of Economics.
  11. 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.
  12. Markus Knell, 1999. "Social Comparisons, Inequality, and Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 664-, December.
  13. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
  14. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
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