The Cognitive and Behavioral Economics of Envy

Abstract

Economists traditionally model choice as the maximization of a stable utility function. A simple way of modeling envy (though not the only one) is by adding a term which is a negative function of the consumption of the other agent(s) in one's own utility function. This paper briefly reviews some applications and implications of the envy model. While the potential applications of the envy model are increasingly well understood, the cognitive economics of envy is much less well understood. First, an envy model requires a specification of the reference group in relation to which the agent is in a rate race for. Second, envy could operate not between individuals but between groups. Third, and more generally, envy has a 'thick' cognitive component underlying the behavior that is supposed to produce.

Keywords: envy, emotions, cognition, reference group, groups

JEL Classification: C91, D11, D21