Social Comparison with Ambiguity: An Investment and Consumption Game

Abstract

This study presents an investment and consumption model with two ambiguityaverse comparative agents whose utility depends on the opponent’s consumption. In Nash equilibrium, social comparison induces more ambiguous agents to invest and consume more aggressively, decreasing the magnitude difference between agents. Their ambiguity level impacts the opponent’s behavior through comparison incentives. The opponent’s reduced ambiguity decreases the agent’s investment and consumption. However, the rival’s ambiguity level does not affect the agent’s welfare in our one-period model, distinguished from conclusions in continuous time. These results have important implications for the literature about competition and ambiguity.

Keywords: Social Comparison, Ambiguity aversion, Investment, Consumption, welfare, Nash Equilibrium