Negatively interdependent preferences

Abstract

Abstract. We develop a theory of representation of interdependent preferences that re¯ect the widely acknowledged phenomenon of keeping up with the Joneses (i.e. of those preferences which maintain that well-being depend oǹ`r elative standing'' in the society as well as on material consumption). The principal ingredient of our analysis is the assumption that individuals desire to occupy a (subjectively) better position than their peers. This is quite a primitive starting point in that it does not give any reference to what is actually regarded as``status'' in the society. We call this basic postulate negative interdependence, and study its implications. In particular, combining this assumption with some other basic postulates that are widely used in a number of other branches of the theory of individual choice, we axiomatize the relative income hypothesis, and obtain an operational representation of interdependent preferences.

The importance of relative performance feedback information: Evidence from a natural experiment using high school students

“…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)).…”

Evolution of Interdependent Preferences in Aggregative Games

“…In random matching environments (such as those studied by Bester and Güth (1998) and Fershtman and Weiss (1996)) the link between strategic advantage and evolutionary stability is less immediate and it is entirely possible that preferences which yield a strategic advantage in each interaction may yet earn lower payo¤s on average than preferences that yield a strategic disadvantage. 20 The same is true in local interaction environments of the kind explored by Eshel, Samuelson and Shaked (1998). While an exploration of preference evolution in random matching and local interaction networks is beyond the scope of this paper, it is clearly an interesting and important topic for future research.…”

“…Relaxing the restrictive assumption that all objective functions are common knowledge is a task which should also be undertaken in future work. Finally, much work remains to be done with regard to examining the implications of our strategic advantage results within the context of alternative speci…cations of evolution, 20 In Koçkesen et al (1997a), preference evolution under pairwise random matching is investigated for the special case of the Hawk-Dove game. The Hawk strategy becomes dominant for interdependent players if their preferences are su¢ciently interdependent, causing a homogeneous population of such players to be vulnerable to invasion by a single independent player (who plays the best response, Dove).…”

“…This particular representation of (negatively) interdependent preferences has recently been proposed and axiomatically characterized by Ok and Koçkesen (1997). In particular, the preferences represented by (1) can be interpreted as a compromise between the standard case where the individual is assumed to care only about her absolute payo¤ ¼ j , and the 4 To guarantee that ½ r is well-de…ned, we assume throughout that the material payo¤ functions always take strictly positive values.…”

Formation of Segregated and Integrated Groups

“…Such a person is concerned with global status since he will want to be a member of the most prestigious group (or the group with the highest average quality). 2 The second payoff function considered is the big fish (or local status) payoff function, here an agent prefers the group where he is the highest quality agent (or the "big fish") 3 A discussion of global versus local status and how a person may trade one for the other is given in Frank [1985], while an axiomatization of local status is given in Ok and Kockesen [2000]. 4 A coalition partition is individually stable if whenever there exists an agent who would like to change locations, at least one person at the new location would be made worse off by the move.…”