Pride and Diversity in Social Economies

Abstract

We study a two-period economy in which agents' preferences take into account their relative economic position. The study builds on a decision theoretic analysis of the social emotions that underlie these relative concerns. These emotions, envy and pride, respond to social losses and gains, respectively. Our main result is that envy leads to conformism in consumption behavior and pride to diversity. We thus establish a link between emotions that are the object of study in psychology and neuroscience, and important features of economic variables, in the first place the equilibrium distribution of consumption and income. (JEL D11, D51, D63, E21, J22)