Who are the Joneses that You are Keeping up with?
A Study about how Reference Groups are Determined
JEL Classification codes : C25, D00, J31
This study empirically investigates who is chosen as the reference group in the standard of living comparison and how it is chosen in Japan and the United States. The results show that majority people will compare to their neighbor instead of the average people in the nation (which is often assumed in the macro and finance literature), colleagues or friends (reference groups in income comparison) in both countries. This paper suggests that people may use the routine standards when facing the selection of reference groups in relative standard of living. In addition, this paper tests the influence of reference group itself on the standard of living. The result unveils that those who compare to their neighbor will rate the relative standard of living higher than the others..