Social identity and risky leisure activities: implications for welfare and policy

In this paper, we build on theories in psychology and economics and link positional preferences to private agents’ identification with a social group, and the social norms present in that group. The purpose of our paper is to analyze behavioral, welfare, and policy implications of a link between private agents´ social identity and a risky leisure activity. Our results suggest that, when the outcome of the positional activity is uncertain, the over-consumption result that is associated with positional preferences in a deterministic framework need not apply to all agents in a social equilibrium. The reason is that agents have incentives to act with caution in order to avoid failure when the outcome of the socially valued activity is uncertain. We also show how policy can be used to improve the welfare within a social group where the risky leisure activity is positional.