Consumer expenditure when positional concerns matter

Abstract

Purpose

The purpose of this paper is to study which factors affect consumer expenditure and how, when positional concerns matter. It also investigates how consumers finance and reallocate their expenditure, and modify their consumer baskets when members of their reference groups spend more on positional goods, and they do not want to lag behind.

Design/methodology/approach

A literature review is presented, and then a new model is developed from a behavioural economic perspective. It describes how consumers with various risk attitudes reallocate their consumer expenditure and modify their consumer baskets when consumption externalities influence their relative consumption due to a positional game, but they want to “keep up with the Joneses”.

Findings

Consumers with different risk attitudes finance and reallocate their consumption expenditures variously to sustain their relative positions. Risk-neutral, slightly and intermediately risk-seeking consumers achieve a lower utility level than others. They do not realise a utility-maximising consumer basket, as it includes a relatively low number of nonpositional goods, but this choice can be considered the best response in a positional game in order to sustain their relative position.

Originality/value

The relationship between positional and nonpositional goods is explicitly described. The model assumes that consumers can be classified based on their risk attitudes when positional concerns matter. It also describes how consumers with various risk attitudes reallocate their consumer expenditure when they want to sustain or improve their relative consumption in a positional game.

Citation

Kovács, K. (2021), "Consumer expenditure when positional concerns matter", International Journal of Social Economics, Vol. 48 No. 10, pp. 1408-1422. https://doi.org/10.1108/IJSE-01-2020-0022