Do Positional Goods Inhibit Savings? Evidence from a Life-Cycle Experiment

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.