“…We will refer to this theory as the preferencesbased or competitiveness theory. We show that based on this explanation, when the relative 5 There is extensive work on preferences that include social comparison, such as negative interdependent preferences (Kandel and Lazear's (1992), Charness and Rabin (1999), Ok and Kockesen (2000)), and preferences over relative income (Duesenberry (1949), Easterlin (1974), Layard (1980), Frank (1984Frank ( , 1985, Clark and Oswald (1996), Hopkins and Kornienko (2004), Geanakoplos (2004, 2005), Moldovanu et al (2005)). Note that competitive preferences are different from preferences that show inequity aversion (Fehr and Schmitd (1999) and Bolton and Ockenfels (2000)).…”