Preferences over consumption and status

Abstract

Experimental evidence suggests that individual consumption has not only personal value but also enters the social part of the utility. Existing models of social preferences make ad hoc parametric assumptions about the nature of this duality. This creates a problem of experimental identification of preferences since without such assumptions it is impossible to distinguish whether consumption or social concerns are driving the behavior. Given observed choice, the Axiomatic model of preferences in this article makes it possible to unambiguously determine personal and social utility without any assumptions about their relationship. The unique separation can be achieved only if the individual choices in different subgroups of other people are available. Preferences over consumption and status are used as an example to demonstrate how the utility is constructed. The model shows what kind of information about choice is needed to empirically determine the nature of social preferences without making restrictive assumptions. This can help to estimate whether personal consumption or social value is more important in economic decisions. © 2012 The Author(s).