Do You Enjoy Having More Than Others or More Than Another? Exploring the Relationship Between Relative Concerns and the Size of the Reference Group

There are ample evidences that individual satisfaction does not depend exclusively on individual situation (namely on individual income and leisure) but also on one’s relative position, namely on how one’s situation lies relatively to the situation of other referent agents (Clark and Oswald in J Public Econ 61(3):359–381, 1996. doi: 10.1016/0047-2727(95)01564-7 ; Solnick and Hemenway in J Econ Behav Organ 37(3):373–383, 1998. doi: 10.1016/S0167-2681(98)00089-4 ; Luttmer in Q J Econ 120(3):963–1002, 2005. doi: 10.1162/003355305774268255 ). The study of relative concerns is rich (Clark et al. in J Econ Lit 46(1):95–144, 2008. doi: 10.1257/jel.46.1.95 ; Clark and Senik in Econ J 120(544):573–594, 2010. doi: 10.1111/j.1468-0297.2010.02359.x ; Solnick and Hemenway 1998) but still the relationship between relative concerns and the size of the reference group is still unexplored. In this paper, we elicit individuals’ relative concerns and we manipulate the size of the reference group (single reference agent vs. multiple reference agents). We conduct two studies, one in which we manipulate the size of the reference group (Study One) and another one in which we control for the identity of the reference group and modulate the size (Study Two). In both studies, we find that the size of the reference group modulates relative preferences. Interestingly, we show that individuals are more likely to prefer Pareto efficient situations and less likely to exhibit relative concerns when the reference group is of small size.