Luxury goods are not only status symbols - they provide psychological armour as well
It’s one of the most frustrating paradoxes for consumers and policymakers alike: low-income individuals spend a proportionally larger percentage of their money on conspicuous goods than higher-income individuals.
In a new study, Niro Sivanathan, Assistant Professor of Organisational Behaviour at London Business School and Nathan Pettit of Cornell University’s Johnson School of Management, draw on psychological theory and research to show that when one’s “ego” is threatened, people are more inclined to buy high-status goods. But if they are presented with other means of alleviating their psychological pain, individuals seek these products less.
“The economic explanation – that people purchase conspicuous goods because they want to signal positive things about themselves to others – felt incomplete,” says Sivanathan. “We wanted to delve into what causes people to act out their urge to purchase conspicuous goods, and more importantly what causes that urge in the first place. Our research shows that part of the impetus behind these consumption decisions is the desire to repair self-threat.” Situating their work among the growing body of literature on compensatory consumption, Sivanathan and Pettit propose a psychological lens to conspicuous consumption, which has important implications for policy decisions aimed at battling U.S. consumer debt.
Through four studies, the authors found that when individuals are given negative feedback about something they care about – information that would threaten their self-worth – they are willing to pay more for high-status goods, such as cars and watches, than when they are given positive or no feedback. Receiving negative feedback, however, does not influence individuals’ desire to purchase non-status, run-of-the-mill goods. This suggests there is a unique relationship between feeling threatened and the desire to purchase high-status goods. The mere act of purchasing such a good – even when it is not visible to others – provides a sense of comfort. In one of the four studies, the authors refined their research to a representative sample of U.S. consumers to show that the bruised self-esteem of low-income individuals in particular drove their willingness to spend on status goods.
In addition to identifying the connection between self-threat and the desire to buy high-status goods, the authors also signal a potential solution to this riddle: When the authors presented participants with the opportunity to reflect on values that are important to them, such as family relationships, health and well-being, before presenting them with a luxury good, their need to acquire this status goods was diminished.
This research, appearing in the Journal of Experimental Social Psychology, is significant in the context of ongoing national efforts to reduce household debt, and may explain why economic incentives directed at motivating debt-ridden households to increase their savings have had little success. “Certainly, the sole cause of consumer debt is not overspending on high-status goods, but that’s part of it,” Pettit says. “What facilitates overspending on conspicuous goods is both the psychology of the consumer, and lenders who leniently extend credit to those most likely to spend beyond their means. It is important to consider revising lending policies that exacerbate the problem for the very people who are prone to engage in such behaviour.”