<p>Should economists depart from the neoclassical assumption of independent preferences and admit that people do not only care about absolute consumption, but also about relative consumption? Three different motives for relative preferences are explored, an instrumental perspective most often grounded in signalling incentives, a view where people care about identity and self-image and finally a theory based on the information content in consumption. The central concern is positional goods, typically seen as status-goods, of particular relevance in signalling contexts. The consumption patterns arrived at give rise to wasteful competitive consumption; the desire to advertise wealth produce a pareto-inferior outcome with an overconsumption of positional goods. In relation to this, we briefly discuss some policy implications as well as survey the available empirical evidence.</p>

Should economists depart from the neoclassical assumption of independent preferences and admit that people do not only care about absolute consumption, but also about relative consumption? Three different motives for relative preferences are explored, an instrumental perspective most often grounded in signalling incentives, a view where people care about identity and self-image and finally a theory based on the information content in consumption. The central concern is positional goods, typically seen as status-goods, of particular relevance in signalling contexts. The consumption patterns arrived at give rise to wasteful competitive consumption; the desire to advertise wealth produce a pareto-inferior outcome with an overconsumption of positional goods. In relation to this, we briefly discuss some policy implications as well as survey the available empirical evidence.