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2005-03-01 | Peer Reviewed

How Much do We Care About Absolute Versus Relative Income and Consumption?

Johansson-Stenman, Olof, Francisco Alpízar and Fredrik Carlsson. 2005. “How Much do We Care About Absolute Versus Relative Income and Consumption?.” Journal of Economic Behavior and Organization 56:3: 405-421.
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We find, using survey-experimental methods, that most individuals are concerned with both relative income and relative consumption of particular goods. The degree of concern varies in the expected direction depending on the properties of the good.

However, contrary to what has been suggested in the previous literature, we find that relative consumption is also important for vacation and insurance, which are typically seen as non-positional goods. Further, absolute consumption is also found to be important for cars and housing, which are widely regarded as highly positional.