Cardinal Sins? Conspicuous Consumption, Cardinal Status and Inequality

This paper analyses the game of status where a large population of individuals with differing incomes have cardinal concerns over relative deprivation in terms of conspicuous consumption. Special cases include inequity aversion and social loss aversion, where negative comparisons are more important than positive, and “keeping up with the Joneses” preferences where individuals compare their consumption with the mean consumption of others. The Nash equilibrium of the resulting large population asymmetric game is inefficient. When preferences are rivalrous, the utilitarian optimal consumption schedule makes all better off, but under inequity aversion makes the rich worse off. Increases in inequality can increase consumption for most and make most worse off.