Sociality and Behavioural Traits in Macroeconomics

In this chapter, we explore the concept of social comparisons and how it has been formalised in the macroeconomic literature. Our aim is twofold: first, to understand how these sociological traits influence individual behaviour, and second, to demonstrate how these concepts can be effectively integrated into a basic economic framework in a simple manner. We begin from the related concepts of the pursuit of social status, the relative income hypothesis, rank comparisons, and “keeping up/catching with the Joneses”. Other prominent instances of social comparisons include conspicuous consumption, positional goods, and wealth-based comparisons. We further explore conspicuous leisure and status related to education or occupational choice. We show how all these effects can be formalised by appropriate extensions of the utility function (“other-regarding preferences”). Such comparisons generally involve negative externalities, which affect welfare adversely through “rat races”, a theme explored next. Refinements to the status motive are also considered, bringing it to embody loss aversion (or “differential status effects”—“pains” versus “gains”). Envy, altruism, self-esteem, aspirations, reference standards, and social norms are also considered. We conclude by considering the (alleged) “capitalist spirit”.