Incorporating Culture and Competition for Status into Quantitative Financial Epidemiology Models

Abstract

This chapter extends the financial epidemiology literature as it applies to the acquisition of consumer debt. A recent manuscript provided a very simple model to illustrate how conspicuous consumption within a community (in the vernacular, “keeping up with the Joneses”) can lead to situations where a contagion of financial insolvency may occur (Friesner, McPherson, & Hackney, 2014). However, that model simply illustrates the feasibility of modeling both conspicuous consumption and financial contagions in a single framework. It does not explicitly incorporate most of the epidemiological, socio-cultural, and psychological factors that drive decisions to use debt to finance conspicuous consumption. In this chapter, the authors build a much more detailed model of financial epidemiology that includes (or can be extended to include) most of the salient ecological characteristics advanced by financial economists (neoclassical or heterodox) and epidemiologists. The model can be used to illustrate specific characteristics that promote (or inhibit) consumer behavior that pushes the household into financial exigency. The results can therefore provide a more informative basis for policy makers to reduce the prevalence of bankruptcy or other financial insolvency within a community as a whole.