Consumer expenditure when positional concerns matter

PurposeThe purpose of this paper is to study which factors affect consumer expenditure and how, when positional concerns matter. It also investigates how consumers finance and reallocate their expenditure, and modify their consumer baskets when members of their reference groups spend more on positional goods, and they do not want to lag behind.Design/methodology/approachA literature review is presented, and then a new model is developed from a behavioural economic perspective. It describes how consumers with various risk attitudes reallocate their consumer expenditure and modify their consumer baskets when consumption externalities influence their relative consumption due to a positional game, but they want to “keep up with the Joneses”.FindingsConsumers with different risk attitudes finance and reallocate their consumption expenditures variously to sustain their relative positions. Risk-neutral, slightly and intermediately risk-seeking consumers achieve a lower utility level than others. They do not realise a utility-maximising consumer basket, as it includes a relatively low number of nonpositional goods, but this choice can be considered the best response in a positional game in order to sustain their relative position.Originality/valueThe relationship between positional and nonpositional goods is explicitly described. The model assumes that consumers can be classified based on their risk attitudes when positional concerns matter. It also describes how consumers with various risk attitudes reallocate their consumer expenditure when they want to sustain or improve their relative consumption in a positional game.

With whom, and about what, do we compare?

We use an experimental approach to test if there is a link between positional preferences and the social closeness and relevance of the reference group. More specifically, we test if people are more positional when they compare with friends and colleagues, than when they compare to an anonymous person in society. We further test if the gender of the members in the reference group is important, and if positional preferences can be linked to an individual’s social identity. To test our hypotheses, we randomize the reference groups across five unique domains – income, work performance, beauty, physical strength and social media popularity. Our results lend support to the hypothesis that social identification with a domain is correlated with positional concerns in that domain. However, in contrast to our hypotheses, we also find that a comparisons with an anonymous person in society trigger positional concerns among a significantly larger share of participants than do comparisons with friends or colleagues. Finally, our results indicate that both the gender of the participant and of the reference group has an effect on positional concerns.

Education as a Positional Good? Evidence from the German Socio-Economic Panel

People care about their relative standing in society and therefore compare themselves to relevant others. Empirical findings suggest that there are concerns for relative standing for different goods and life domains such as income, cars, attractiveness, and supervisor’s praise. Even education has been mentioned as having a (partially) positional character. However, there has been only small consideration of education as a positional good in the empirical literature so far. Based on the literature on positional concerns and the role of education on relative position, I use German panel data to investigate the relationship between education and life satisfaction beyond the effect education might have through other variables such as income, health, or occupational prestige. Additionally, I consider the possibility that the consumption of education is subject to positional concerns. I discover a positive relationship between education and life satisfaction, indicating that education has a consumption component. Moreover, the relationship depends on the distribution of particular levels of education, suggesting that education has a positional character.