Happiness and loss aversion: Is utility concave or convex in relative income?

Vendrik, Maarten; Woltjer, Geert

doi:10.1016/j.jpubeco.2007.02.008

Cited by 137 publications

(119 citation statements)

References 33 publications

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“…This finding is opposite to the behavior predicted when the referent's income is used as a reference point. It is, however, in line with the prediction made by the utility function of the shape found by Vendrik and Woltjer (2007).…”

Section: Social Reference Point Effectsupporting

confidence: 88%

“…Brennan et al (2008) show that people aren't willing to pay to reduce others' risk despite their social preferences over expected outcomes. More directly related is the finding by Vendrik and Woltjer (2007) on the effect of social comparison on the utility function. These authors establish that both below and above the social reference point utility functions are concave, while other reference points lead to a convex utility function for losses.…”

Section: Resultsmentioning

confidence: 98%

“…As Bault et al (2008) and Brennan et al (2008) show, behavior in settings that include both risk and social comparison is not easy to predict by straightforward extensions of models developed to account for either social preferences or risky choices. Furthermore the results of Vendrik and Woltjer (2007) suggest that at least one of the forces that drive the reflection effect according to prospect theory-the shape of the utility function-may not be present in a social setting. Vendrik and Woltjer's utility function is concave for both gains and losses, relative to a social reference point.…”

Section: Does a Social Reference Point Influence Decisions Under Risk?mentioning

confidence: 98%

“…According to Bault et al (2008), people may actually be gain seeking relative to a social reference point in some situations. Also, what little information there is about the effect of a social reference point on the shape of the utility function suggests that it is concave in both the gain and loss domain (Vendrik and Woltjer 2007) while for individual reference points utility is convex in the loss domain (Kahneman and Tversky 1979).…”

Section: ) and What Is To What Could Have Beenmentioning

confidence: 99%

“…There is, however, some research that attempts to ascertain the shape of the social utility function. Vendrik and Woltjer (2007) examined the effect of the difference between a household's income and the average income of a likely reference group on reported satisfaction. Their finding is that utility is concave in income, independent of whether the difference between own and reference income is negative or positive.…”

Section: A Social Reference Pointmentioning

confidence: 99%

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Social comparison and risky choices

2011

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Theories (and experiments) on decision making under risk typically ignore (and exclude) a social context. We explore whether this omission is detrimental. To do so we experimentally investigate the simplest possible situation with both social comparison and risk: participants choose between two lotteries while a referent faces a fixed payoff. Participants are more risk averse when they can earn at most as much as their referent (loss situation) than when they are ensured they will earn at least as much as their referent (gain situation). Prospect theory with a social reference point would predict the exact opposite behavior. These results show that straightforward extensions of existing theories to allow for social comparison do not provide accurate predictions.Keywords Decision making under risk . Reflection effect . Social comparison . Social preferences . Experiment JEL Classification C91 . D81 . D03Using comparison to evaluate outcomes or possibilities is a regular feature of human decision making. We compare our own situation to those of others (e.g. Clark et al.

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Section: Social Reference Point Effectsupporting

confidence: 88%

Section: Resultsmentioning

confidence: 98%

Section: Does a Social Reference Point Influence Decisions Under Risk?mentioning

confidence: 98%

Section: ) and What Is To What Could Have Beenmentioning

confidence: 99%

Section: A Social Reference Pointmentioning

confidence: 99%

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Social comparison and risky choices

2011

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The Impact of Culture on Loss Aversion

Wang

Rieger

Hens

2016

Behavioral Decision Making

122

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Based on the literature on the relationship between culture, emotion, and loss aversion, we derive that culture can influence the degree of loss aversion. To test our hypotheses, we conduct a standardized survey in 53 countries worldwide that includes the questions from the Hofstede survey on cultural dimensions as well as lottery questions on loss aversion. The results show that individualism, power distance, and masculinity increase loss aversion as predicted, whereas the impact of uncertainty avoidance is less significant. Moreover, we also find a relation between the distribution of major religions in a country and loss aversion. In comparison, the connection of loss aversion to macroeconomic variables seems to be much smaller. Copyright © 2016 John Wiley & Sons, Ltd.

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