Loss Aversion and Conspicuous Consumption in Networks

Yann Bramoullé (1) , Christian Ghiglino (2)

1 AMSE - Aix-Marseille Sciences Economiques
2 Essex Pathways, University of Essex

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.

Mots clés: Loss Aversion; Conspicuous Consumption; Social Networks

Domaines: Economies et finances

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