Loss aversion, social comparison and competitive behavior at young age

Nakamoto, Yasuhiro and Sato, Masayuki (2011): Loss aversion, social comparison and competitive behavior at young age.

Abstract

We examine the relationship between competitive behavior and social comparison where in this paper competitive behavior is measured by physical ability performance. In particular, by incorporating social comparison into prospect theory, we directly estimate the degree of loss aversion with social comparison, a concept we term `ALJ' (Avoiding Loss relative to the Joneses). Our main findings are as follows: (i) the estimated value function is refracted at another's gain and the average estimated value of ALJ is significantly different from the unity; (ii) physical fitness influences the degree of ALJ; (iii) gender influences social comparison preferences as well as ALJ; (iv) participants with a greater degree of ALJ tend not to respond to voluntary questionnaire; (v) the form of participants' ALJ is affected by the voluntary behavior of their parents. In addition, we compare ALJ with loss aversion in the framework of prospect theory, and find evidences which imply that ALJ and loss aversion have different characteristics.

• Item Type: MPRA Paper
• Language: English
• Keywords: Loss aversion; Risk aversion; Social Comparison; Physical fitness; Voluntary participation
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C90 - General; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C93 - Field Experiments

References

\bibitem{abel}Abel, A., 1990, Asset prices under habit formation and catching up with the Joneses, \textit{American Economic Review} 80, 38--42.

\bibitem{bm}Biddle, S., and Mutrie, N., 2007, Psychology of physical activity: Determinants, well-being and interventions. Routledge.

Chiteji, N., 2010, Time-preference, non-cognitive skills and well-being across the life course: Do non-cognitive skills encourage healthy behavior?, \textit{American Economic Review} 100, 200-204.

\bibitem{Clark and Oswald} Clark, A., and Oswald, E., 1998, Comparison-concave utility and following behaviour in social and economic settings, \textit{}, \emph{Journal of Public Economics} 70, 133--155.

Cleave, B., Nikiforakis, N., and Slonim, R., 2011, Is there selection bias in laboratory experiments? The case of social and risk Preferences, unpublished manuscript.

Corneo, G., and Jeanne, O., 1997, On relative wealth effects and the optimality of growth, \textit{Economics Letters} 54, 87--92.

Croson, R., and Gneezy, U., 2009, Gender differences in preferences, \textit{Journal of Economic Literature} 47, 448--474.

Dohmen, T., Falk, A., Fliessbach, K., Sunde, U., and Weber, B., 2011a, Relative versus absolute income, joy of winning, and gender: Brain imaging evidence. \textit{Journal of Public Economics} 95, 279-285.

Dohmen, T., Falk, A., Huffman, D., and Sunde, U., 2010, Are risk aversion and impatience related to cognitive ability?, \textit{American Economic Review} 100, 1238--1260.

Dohmen, T., Falk, A., Huffman, D., and Sunde, U., 2011b, The intergenerational transmission of risk and trust attitudes, \textit{Review of Economic Studies} forthcoming.

Dupor, B., and Liu, W., 2003, Jealousy and equilibrium overconsumption, \textit{American Economic Review} 93, 423--428.

Fliessbach, K ., Weber, B., Trautmer, P., Dohmen, T., Sunde, U., Elger, C., and Falk, A., 2007, Social comparison affects reward-related brain activity in the human ventral striatum, \textit{Science} 318, 11305-11308.

Futagami, K., and Shibata, A., 1998, Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth, \textit{Journal of Economic Behavior \& Organization} 30, 109--126.

Gal\'{i}, J., 1994, Keeping up with the Joneses: Consumption externalities, portfolio choice, and asset prices, \textit{Journal of Money, Credit and Banking} 26, 1--8.

Gneezy, U., Niederle M., and Rustichini, A., 2003, Performance in competitive environments: Gender differences, \textit{Quarterly Journal of Economics} 118, 1049--1074.

Gneezy, U., and Rustichini, A., 2004, Gender and competition at a young age, \textit{American Economic Review} 94, 377--381.

Gneezy, U., Leonard, K., and List, J., 2009, Gender differences in competition: Evidence from a matrilineal and a patriarchal society, \textit{Econometrica} 77, 1637--1664.

Green, H., McGinnity, A., Meltzer, H., Ford T., and Goodman R., 2004, Mental health of children and young people in Great Britain, 2004. Published with the permission of the controller of Her Majesty's Stationery Office.

Heckman, J., 1979, Sample selection bias as a specification error, \textit{Econometrica} 47, 153--161.

Heckman, J., Ichimura H., Smith, J., and Todd, P., 1998, Characterizing selection bias using experimental data, \textit{Econometrica} 66, 1017--1098.

Hendry, L., and Douglass, L., 1975, University students: Attainment and sport, \textit{British Journal of Educational Psychology} 45, 299--306.

Holt, C., and Laury, S., 2002, Risk aversion and incentive effects, \textit{American Economic Review} 92, 1644--1655.

Kahneman, D., 2011, Nobel Prize Lecture and other essays (in Japanese), by the Nobel Foundation, Japanese translation rights arranged with the Nobel Foundation through Japan UNI Agency, Inc., Tokyo, Rakkousya.

\bibitem{Kahneman and Tversky} Kahneman, D. and Tversky, A., 1979, Prospect theory: An analysis of decision under risk, \emph{Econometrica} 47, 263--292.

Liu, E., 2011, Time to change what to sow: risk preferences and technology adoption decisions of cotton farmers in China, \textit{The Review of Economics and Statistics}, forthcoming.

Liu W., and Turnovsky, S., 2005, Consumption externalities, production externalities, and long-run macroeconomic efficiency, \textit{Journal of Public Economics} 89, 1097--1129.

Ljungqvist, L., and Uhlig, H., 2000, Tax policy and aggregate demand management under catching up with the Joneses, \textit{American Economic Review} 90, 356--366.

Marsh, H., and Sonstroem, R., 1995, Importance ratings and specific components of physical self-concept: relevance to predicting global components of self-concept and exercise, \textit{Journal of Sport and Exercise Psychology} 17, 84--104.

Nakamoto, Y., 2009, Jealousy and underconsumption in a one-sector model with wealth preference, \textit{Journal of Economic Dynamics and Control} 33, 2015--2029.

Prelec, D., 1998, The probability weighting function, \textit{Econometrica}, 497-527.

Sonstroem, R., Harlow, L., and Josephs, L., 1994, Exercise and self-esteem: validity of model expansion and exercise associations, \textit{Journal of Sport and Exercise Psychology} 16, 29--42.

Sonstroem, R., Harlow, L., and Salisbury, K., 1993, Path analysis of a self-esteem model across a competitive swim season, \textit{Research Quarterly for Exercise and Sport} 64, 335--342.

Sonstroem, R., and Morgan W., 1989, Exercise and self-esteem: rationale and model. \textit{Medicine \& Science in Sports \& Exercise} 21, 329--337.

\bibitem{Tanaka et al} Tanaka, T., Camerer, C. F. and Nguyen, Q., 2010, Risk and time preferences: Linking experimental and household survey data from Vietnam, \emph{American Economic Review} \textbf{47}, 263--292.

\bibitem[3]{Tversky and Khneman} Tversky, A. and Kahneman, D., 1992, Advances in prospect theory: Cumulative representation of uncertainty, \emph{Journal of Risk and Uncertainty} \textbf{5}, 297--323.

Veblen, T., 1994, The theory of the leisure class, Copyright by Dover Publications, Inc.