Do positional goods inhibit saving? Evidence from a life-cycle experiment

Feltovich, Nick and Ejebu, Ourega-Zoé (2014) Do positional goods inhibit saving? Evidence from a life-cycle experiment. Journal of Economic Behavior and Organization, 107 (PB), 440-454. (doi:10.1016/j.jebo.2014.01.015).

Record type: Article

Abstract

We investigate the effect of positional goods (goods for which one's consumption relative to others' matters) on saving, based on results from a life-cycle consumption/saving experiment. In a Group treatment, we allow inter-personal comparisons by assigning subjects to groups and displaying rankings based partly on consumption. A baseline Individual treatment is similar, but without the additional information. We find more under-saving (saving less than the optimal amount), and lower money earnings for subjects, in the Group treatment. Both effects are economically relevant, with magnitudes of roughly 6-7% of expected income and 7-8% of average earnings respectively. Additional analysis shows that the result is driven by those subjects who are not ranked in the top three in their group ("keeping up with the Joneses"), and males in particular.

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Accepted/In Press date: 26 January 2014

e-pub ahead of print date: 4 February 2014

Published date: 1 November 2014

Additional Information: Funding Information: Some of this research took place while Feltovich was at University of Aberdeen. Financial support from University of Aberdeen's College of Arts and Social Sciences is gratefully acknowledged. We thank Philip Grossman, Anmol Ratan, Joe Swierzbinski, participants at several conferences and seminars, the guest editors of this special issue, and three anonymous referees for helpful suggestions and comments that have greatly improved the paper. Publisher Copyright: © 2014 Elsevier B.V.

Keywords: Consumption, Experiment, Inter-personal comparisons, Positional goods, Precautionary saving