Evolution of Risk-Taking Behaviour and Status Preferences in Anti-Coordination Games

TL;DR

This paper explores how risk-taking and status preferences evolve as stable equilibria in anti-coordination games, highlighting the role of relative consumption as costly communication in avoiding miscoordination.

Contribution

It introduces a model showing that stable risk-taking behaviors and status preferences can emerge naturally in anti-coordination settings, emphasizing the importance of relative consumption as communication.

Findings

Risk-taking behaviors become stable when individuals differentiate themselves.

Relative consumption serves as a costly communication channel.

Status preferences are crucial when miscoordination costs are high.

Abstract

This paper analyses how risk-taking behaviour and preferences over consumption rank can emerge as a neutrally stable equilibrium when individuals face an anti-coordination task. If in an otherwise homogeneous society information about relative consumption becomes available, this cannot be ignored. Despite concavity in the objective function, stable types must be willing to accept risky gambles to differentiate themselves, and thus allow for coordination. Relative consumption acts as a form of costly communication. This suggests status preferences to be salient in settings where miscoordination is particularly costly.