The Fight-or-Flight Response to the Joneses

This paper studies the fight-or-flight ambivalence people show towards the success of the proverbial Joneses. If an agent cares about leisure and his consumption relative to a benchmark set by the Joneses, his preferences display the keeping-up-with-the-Joneses (KUJ) property if an increase in the benchmark urges him to substitute away from leisure into work, allowing him to finance more consumption; the opposite is labeled running-away-from-the-Joneses (RAJ). The long literature, thus far, assumes these definitions apply globally: if any agent’s preferences display KUJ (or RAJ), everyone’s will. In an otherwise-standard environment with endowment heterogeneity, we showcase the possibility that these definitions may apply locally but not globally. This means heterogeneous agents sharing the same underlying preferences may respond very differently to the Joneses: while some may choose to keep up, others, possibly their close neighbors, may choose to run away. Depending on the benchmark, the same agent may exhibit KUJ and RAJ on different parts of the consumption space. The analysis is novel because a) such fight-or-flight conflict does not arise in existing models of consumption externalities, b) it arises endogenously here, and c) it exposes a deep connection between the fight-or flight-response and wealth-dependent risk aversion of agents and explains the behavior in terms of textbook income/substitution effects.