Abstract
Some economists argue that consumption of publicly visible goods is driven by social status. Making a causal inference about this claim is difficult with observational data. We conduct an experiment in which we vary both whether a purchase of a physical product is publicly visible or kept private and whether the income used for purchase is linked to social status or randomly assigned. Making consumption choices visible leads to a large increase in demand when income is linked to status, but not otherwise. We investigate the characteristics that mediate this effect and estimate its impact on welfare.
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Notes
With the rise of social networks and associated technologies such as the smartphone, many formerly private choices, such as food consumed at home or the decoration of private spaces, have become increasingly visible to the public. Everyday millions of people post descriptions and images from their private lives on social networks such as Facebook and Instagram that feature the goods they consume.
Several attempts have been made over the years to develop Veblen’s ideas within a more formal microeconomic framework. Following Leibenstein (1950), some authors have mistakenly attempted to capture Veblen’s argument with the notion that price is directly a part of utility. Veblen’s analysis implies instead that the determinants of utility are consumption and social status in the eyes of others. Those goods which signal social status must be visible, but signaling may occur both through quantity and quality/price (Bagwell and Bernheim 1996).
Further, since participants did not know the consumption decisions of others, our experiment isolates the effect of conspicuous consumption from social learning (Grinblatt et al. 2008).
While cognitive ability is a source of social status in general, it is particularly important in the social world of university students.
Such non-monotonicities can be a result of pooling equilibrium or counter signaling. Unfortunately, we cannot distinguish between these potential explanations.
For a review of this literature see Dechenaux et al. (2015).
We would expect the conditional CRT effect to be driven by impulsivity because, unlike with the CRT, inducing intuitive but incorrect response is not the only goal in the design of questions on the cognitive test.
The total income available to spend on chocolate across all participants in each treatment was $328.50.
This was done for two reasons. First, we tried to keep each session under 90 min and, given that our experiment was hand run, we were able to substantially shorten each session by having participants answer the survey questionnaire while their payoffs were calculated. Second, for a more meaningful measure of the experienced welfare it was important for participants to experience the actual process of status signaling through purchasing chocolate in the public treatments.
The unadjusted mean mood looks very similar and is shown in Table B2 in the Online Appendix.
Signaling in our experiment is relatively cheap: The lowest-rank person earned $5.25 and the average truffle consumption was 2 in rank-private, so even the lowest-rank person could inexpensively engage in signaling competition.
Yet another explanation is that people who performed poorly on the test might use consumption of chocolate to comfort themselves (although we find no support for this as low status people do not consume much chocolate in other conditions).
Another explanation is that women may be discouraged from public consumption of chocolate, since purchasing a rich and highly caloric treat in public may have more negative connotations for women than men. Indeed, when income is allocated randomly, women consume less chocolate in the public condition than when consumption is private (see Table B3 in the Online Appendix).
Of course, in some environments status-seeking behavior may be beneficial to economy. For example, status and social recognition may be used to enhance worker performance (Kosfeld and Neckermann 2011) or to encourage donations to charities (Karlan and McConnell 2014; Samek and Sheremeta 2014, 2015).
In a market setting, conspicuous consumption of goods for which public visibility is an integral property will tend to raise prices. Depending on the shape of the demand curve, this may amplify or mute the decision welfare effect, though we expect it will be negative.
In our experiment the highest ranked individuals made almost three times more than the lowest ranked individuals. So, the highest ranked individuals could have easily out-signaled the lowest ranked individuals and still earn more cash.
Sivanathan and Pettit (2010) argue that individuals increase their demand for status goods when they receive negative information about themselves. They terms such information a self-threat. The response to such a threat is to engage in conspicuous consumption in order to restore or defend self-integrity. We can view those participants who ranked in the bottom third on the quiz as having received negative information about themselves. Table B4 in the Online Appendix reports estimation of two regressions for participants in the rank-private and rank-public treatments. The dependent variable in the first regression is the income share spent on consumption and in the second regression the dependent variable is mood. The independent variables are the dummies indicating treatment, female, having a test rank > 8, as well as the interactions. The estimation results show that participants who receive negative information about themselves (i.e., test rank > 8) spend higher share of income on chocolate. Also, we find that there is no effect on participant mood for this subgroup. These findings are consistent with an interpretation that low-rank participants have lower mood if they fail to engage in extra chocolate consumption in the rank-public treatment (although the evidence is not causal).
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Acknowledgements
We thank Yan Chen, Ori Heffetz, David Huffman, John List, Tanya Rosenblat, Klaus Schmidt, Justin Sydnor, Lise Vesterlund, Alistair Wilson, Bart Wilson and seminar participants at Case Western Reserve University, Chapman University, Kent State University, the University of Michigan, the University of Pittsburgh as well as participants at the North American Economic Science Association Meetings in Dallas for helpful comments. We also thank the Weatherhead School of Management for generous funding of this project and Sarah Mattson for excellent research assistance. The usual disclaimers apply.
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Clingingsmith, D., Sheremeta, R.M. Status and the demand for visible goods: experimental evidence on conspicuous consumption. Exp Econ 21, 877–904 (2018). https://doi.org/10.1007/s10683-017-9556-x
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DOI: https://doi.org/10.1007/s10683-017-9556-x