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Bramoullé, Y., Ghiglino, C.

Status Consumption in Networks: A Reference Dependent Approach

JIWP Number: 2409

Abstract: We introduce loss aversion into a model of conspicuous consumption in networks. Agents allocate heterogeneous incomes between a conventional good and a status good. They interact over a connected network and compare their status consumption to their neighbors’ average consumption. We find that aversion to lying below the social reference point has a profound impact. If loss aversion is large relative to income heterogeneity, a continuum of conformist Nash equilibria emerges. Agents have the same status consumption, despite differences in incomes and network positions, and the equilibrium is indeterminate. Otherwise, there is a unique Nash equilibrium and status consumption depends on the interplay between network positions and incomes. Our analysis extends to homothetic and heterogeneous preferences.

Keywords: Conspicuous Consumption, Loss Aversion, Social Networks

PDF: jiwp2409.pdf

Open Access Link: 10.17863/CAM.107461

Theme: networks