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Loss Aversion and Conspicuous Consumption in Networks

Abstract

We introduce loss aversion into a model of conspicuous consumption in networks. Agents allocate their income between a standard good and a status good to maximize a Cobb-Douglas utility. Agents interact over a connected network and compare their status consumption to their neighbors' average consumption. Loss aversion has a profound impact. If loss aversion is large enough relative to income heterogeneity, a continuum of Nash equilibria appears and all agents consume the same quantity of status good. Otherwise, there is a unique Nash equilibrium and richest agents earn strict status gains while poorest agents earn strict status losses.
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Dates and versions

hal-03630455 , version 1 (05-04-2022)

Identifiers

  • HAL Id : hal-03630455 , version 1

Cite

Yann Bramoullé, Christian Ghiglino. Loss Aversion and Conspicuous Consumption in Networks. 2022. ⟨hal-03630455⟩
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