Working Paper: CEPR ID: DP17181
Authors: Yann Bramoull; Christian Ghiglino
Abstract: We introduce loss aversion into a model of conspicuous consumption in networks. Agentsallocate their income between a standard good and a status good to maximize a Cobb-Douglasutility. Agents interact over a connected network and compare their status consumption totheir neighbors’ average consumption. Loss aversion has a profound impact. If loss aversionis large enough relative to income heterogeneity, a continuum of Nash equilibria appears andall agents consume the same quantity of status good. Otherwise, there is a unique Nashequilibrium and richest agents earn strict status gains while poorest agents earn strict statuslosses.
Keywords: loss aversion; conspicuous consumption; social networks
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| loss aversion (G41) | continuum of Nash equilibria (C72) |
| income heterogeneity (D31) | continuum of Nash equilibria (C72) |
| loss aversion (G41) | conformism in consumption behavior (D10) |
| income heterogeneity (D31) | agents' consumption decisions (D12) |
| loss aversion not large enough (G41) | unique Nash equilibrium (C72) |
| richest agents (L85) | strict status gains (P26) |
| poorest agents (L85) | strict status losses (Z13) |