Negatively interdependent preferences

We develop a theory of representation of interdependent preferences that re ̄ect the widely acknowledged phenomenon of keeping up with the Joneses (i.e. of those preferences which maintain that well-being depend on ``relative standing'' in the society as well as on material consumption). The principal ingredient of our analysis is the assumption that individuals desire to occupy a (subjectively) better position than their peers. This is quite a primitive starting point in that it does not give any reference to what is actually regarded as ``status'' in the society. We call this basic postulate negative interdependence, and study its implications. In particular, combining this assumption with some other basic postulates that are widely used in a number of other branches of the theory of individual choice, we axiomatize the relative income hypothesis, and obtain an operational representation of interdependent preferences.