Dan Yarosh

Why Luxury is Valuable

Status Aspirations and

Self-Signaling Create

Premium Value in Luxury

Consumers Goods

Copyright Daniel B. Yarosh, Ph.D., 2014. All Rights Reserved.

Abstract

Luxury goods are a significant portion of the marketplace and an aspiration for nearly everyone, but we do not really understand why these goods carry a premium value. I investigated this through a series of survey questions to more than 1600 Americans.  The results show that these consumers are willing to spend both money and time to acquire luxury goods beyond their intrinsic utility and irrespective of the brand name.  They value them in part because they help gain status relative to their neighbors, and people readily understand that their neighbors may only buy luxury goods that they can show off. Surprisingly, however, luxury goods do not need to be displayed to the neighbors in order to hold value. People regularly buy luxury goods for themselves alone, suggesting that one motive for acquiring luxury is to self-signal.  The premium value of luxury goods is fragile and it can be easily devalued when placed in the wrong context or diluted by fakery. These results provide new insights into the behavioral psychology of the luxury goods category.

Introduction

Well-known brands of luxury goo​ds are potent forces in the marketplace. In recent years new wealth injected into the consumer goods market has led to a bifurcation in consumer preferences: they shifted spending to less expensive commodity goods while at the same time they increased their demand for premium priced luxury goods [[i]].  Luxury goods are not simply the higher end of a continuum of consumer pricing. 

More than 100 years ago Thorsten Veblen recognized that luxury goods convey the status of their owner to others, whether or not they are superior in quality [[ii]].  They are signals of status, and must be costly (either in money, time or effort) to have value in conveying the appropriate signal.  Today, luxury goods offered with luxury brand names and in luxury distribution channels have a value premium in consumers’ minds due to a perception of increased quality and utility [[iii]].

The behavioral psychology behind this perception of increased utility is not understood. Do consumers who are concerned about their own status value luxury items more than those who do not?  Are they more concerned about those above them or below them in social standing?  What are these buyers willing to forgo in order to acquire luxury goods?  Is it important to luxury buyers whether their luxury goods are displayed in public? What is the difference between men and women in their desires for luxury goods?  These questions are addressed here using surveys of a large and diverse US population.

Methods

A total of 1640 people in the U.S. were surveyed.  The texts of the survey questions are found in Appendix I.  The surveys were conducted on-line using Survey Monkey (see surveymonkey.com).  The first survey of 596 people was
conducted in March 2012, the second survey of 524 people was conducted in September-October 2012, and the third survey was of 520 people in January 2014.  The only entry criteria was that the individual was 18 years of age or older.  Survey Monkey modestly reimbursed the responders for their participation.

The participants lived within U.S., predominately east of Mississippi, and a majority of remainder lived on or near the West Coast.  The distribution of residencies was similar among the surveys.  The demographic characteristics are shown in Appendix II.  There were approximately equal numbers of men and women in the surveys, with slightly more women in the first survey and more men in the second.  The subjects were predominantly over 45 years old (but more younger respondents in the third survey), ethnically white, and had at least some college education.  Most were married, but 24%, 15% and 31% in the three surveys were never married.

The texts of the questions are found in Appendix I.  The questions were in the same order for all participants.  The order of the answers was randomized, except when the answers were about values (money or time), in which case the values answers were ordered from lowest to highest.  Values such as time or money were used to allow subjects to convey the intensity of their feelings regarding status of luxury goods.  Values were grouped in ranges (e.g. $101 - $200).  In order to calculate averages for the answers, each answer was assigned the lowest value in the range (e.g. $101).

Statistical analysis was conducted using StatPlus for Mac.  The responses to each question were first analyzed by ANOVA against the independent variables of sex, age, race (white or non-white), marital status (single v ever married) and education (high school, some college, undergraduate degree, graduate degree).  If the ANOVA had a p <0.05, linear regression analysis was used to determine which of the independent variables was significantly associated with the outcome.  For those with significant association, a Chi-squared test was performed for each pair of dependent and independent variables to determine the direction of the association.  All p-values reported here are the results of Chi-squared tests.

Results

Status and Aspiration are Drivers of Human Behavior

People routinely overestimate their status and personal qualities relative to the rest of the population ([iv]).  In each of these surveys, most responders said they were just as well off as their neighbors (64.9%, 63.0%, and 66.9% in the three surveys).  However, they were more likely to say they were “better off” than “worse off” than their neighbors (23.8% v 12.1%; 21.9% v 15.1%; 21.3% v 11.7% in the three surveys).  Over all the surveys, nearly twice as many said they were better off than worse off (22.4% v 12.9%). This over-optimism was independent of race, marital status or age. As might be expected, increasing education was associated with feeling better off, rising from 18.8% among high school graduates to 26.3% for graduate degree holders (p=0.028). Men tended to think they are better off than their neighbors compared to women (25.5% v 19.5%, p = 0.012).

Status is always relative to someone else, and goods that covey status are considered positional because their value is dependent on their position relative to other goods in the same category.  In a large survey in Sweden people were
asked to make a recommendation to a hypothetical relative living in the future about living in one of two societies – one in which their income was high but smaller than the average, the other in which their income was small but greater than the average.  The study concluded that income was significantly positional, i.e. people recommended that their relatives live where their income was greater than average [[v]].  

Here we asked people in the US in the first survey directly: “Would you rather have $150 when everyone else has $300, or would you accept $100 when others had $50?” Contrary to the expectation of rational choosing, more than half (56.4%) preferred the $100, rather than taking $150, as long as they had more than others.  The proportion was

independent of sex, age, race, married status or education.  The decision was influenced by the amount offered compared to the amount held by others.  In a second survey, subjects were offered $100 when others had $25, or $150 when others had $600 – increasing the disparity from two- to four-fold.  The proportion now choosing $100 instead of $150 increased to 60.7%, but the increment was not statistically significant.  The result was again independent of sex, age, race, married status or education.  However, in the third survey, the subjects were offered $100 when others had $75, or $150 when others had $175 – greatly reducing the disparity.  The proportions now reversed, with 62.7% preferring the larger amount, and only 37.3% choosing the $100 when others had $75.  Here the younger groups were even more likely than the older groups to choose the larger amount (75.3% for 18-24 year olds v 54.9% for 65-74 yr olds; p=0.0035).  People choose by narrow economic analysis when the disparity with others is small, but at larger disparities people’s feelings regarding the status of others influence their choices.

Status Display and False Signals

The display of luxury goods is one means by which people signal their status to others. Logos are used by brands to conspicuously mark their goods, particularly on clothing where the logo is readily visible.  This can be an opportunity for deception, since the observer cannot otherwise easily verify the brand or quality of the clothing.  Subjects were asked whether or not they would pay to have a false luxury logo sewn onto a free custom-made shirt.  28.4% chose to pay, and of those who agreed, their average offer was $8.26.  There was no correlation with sex, age, marriage status, or perception of status relative to neighbors.  This significant portion of consumers who are willing to falsely display brand logos on clothing makes the true display of status more difficult. This is part of the  “free-rider” problem of honesty.  Symbols of status must be true and costly to convey their value.  Free riders will always try to falsify the signal, and true status symbols must be enforced against free riders, or they will ultimately lose their value.

Of special note, there was a strong correlation between willingness to purchase a false logo and race.  Non-whites were much more likely to buy the false logo than whites (49.0% v 26.3%, p=0.00001) and non-whites who were willing to pay offered on average more than whites ($11.98 v $7.54).  This may indicate that minorities within a culture are more eager to display costly brand signals as a way to show social achievement or membership in the majority group.  There was also a strong correlation between education and willingness to pay (p=0.00025).  The percentage willing to pay for the false logo fell from 47.7% among those with a high school education to 19.4% among those with a graduate degree.  This may mean that increasing education increases the perception of the benefits of playing by the rules and the risk of penalty for detection of false signals.

Gifting and Costly Signals

​Gift giving may be a relatively private matter, such as to newlyweds.  However, the amount may be influenced by the donor’s social status.  Subjects were asked when giving a wedding gift, if they would give more, less or the same as a neighbor who was better off.  When they compared themselves to a better off neighbor, 62.6% said they would give a smaller wedding gift.  The result was independent of sex, age, marital status or education.  Whites were more likely to give less than non-whites (64.4% v 50.0%, p=0.0026).

Giving to charity may be a similar or more public demonstration of wealth.  Subjects were asked whether when giving a charitable donation, if they would give more, less or the same as a neighbor who was worse off.  When comparing themselves to a less-well off neighbor, only 7.6% would give less (60.2% would give the same, and 32.2% would give more).  This was again independent of all demographic variables. 

​These results are consistent with brain imaging studies that show that social defeats activate the emotional limbic areas (ventral striatum and the insula) much more strongly than victories, and thus provides a salient negative reinforcer to social status loss [[vi]].  People want to give more than a less-well off neighbor to maintain their status, but do not try to compete with a better-off neighbor.

This is an important aspect of the aspiration inherent in luxury goods.  The desire is to be better off than most, and hence the choice to have $100 when other have $50, rather than $150 when others have $300.  The fear that is the other side of this desire is falling behind in social status.  Thus, people are willing to spend more to avoid losing status than they spend to gain status.

What is particularly remarkable in these results is that the decision is a private matter, known largely only to the recipient and the donor, but not the community at large that arbitrates status.  Nevertheless, social standing influences these private decisions.

We now consider how important is the public display of status.

Spending for Status: Displayed or Concealed Goods

​People purchase expensive goods to signal social status.  Subjects were asked whether they were willing to spend more on a purchase in order to surpass their neighbors who had purchased a similar item.  There was a range of goods, some of which are publicly visible (displayed: car or watch) and some are in private places within the home (concealed: bedroom set, refrigerator).  The intensity of their desire to surpass their neighbors was expressed by the amount of money they were willing to pay.  In each survey subjects were only asked once about particular goods  (e.g car or refrigerator), so that all the possibilities were covered in two surveys.

​Table 1.  Subjects were willing to spend more to surpass neighbor

​

​In each case, between about 15 to 30% said they would in fact spend more just to exceed their neighbors’ purchase (Table 1).  The proportions varied by the item, with the greatest number spending more for a car, and the least spending more for a watch.  There was no difference whether the goods were displayed or concealed.  The percentages were also similar whether the spending was to surpass a neighbor who was better off or a neighbor who was worse off.

 
For displayed goods, subjects’ intensity of feeling (as measured by their willingness to spend) was greater to keep up with better off neighbor than to keep up with a worse off neighbor (they offered 66% less for car and 2% less for a watch to surpass a worse off neighbor). Overall, the demographic factors were not related to any of the choices to spend more for displayed goods compared to neighbors, with two exceptions.  Non-whites were more likely to spend
more for a car compared to a worse off neighbor (p=0.012) and for a watch compared to a better off neighbor (p=0.0042). 

For concealed goods, the intensity of feeling was reversed.  They offered to spend more to surpass worse off neighbor than they offered to exceed a better off neighbor (they offered 13% more for a bedroom set and 12% more for a refrigerator to surpass a worse off neighbor).  None of these choice frequencies were related to age, sex, race, marital status or education.

Over a wide range of situations a substantial fraction of people consider spending more money than they originally intended in order to maintain or advance their status relative to their neighbors. But they do not appear more likely to spend more for displayed luxury compared to concealed luxury.

In a direct test of the desire to display status, subjects were asked if they would pay a tax in order to display an inherited famous sculpture outside their home for all to see, or forgo the tax and keep the sculpture concealed from the public within the home.  An overwhelming 81.2% were unwilling to pay any amount to display the art. The sentiment was unrelated to any of the collected demographics. 

All these answers suggest that the display of luxury is not the only reason people spend extra for the prestige goods.  To understand buying habits better, subjects were asked if they had purchased a luxury good in the past month, and whether others knew about the purchase (display) or not (concealed).  Since the survey was conducted in January, the trailing month included the Christmas season. This is in fact a time when people spend on themselves as well as gifts for others – 57% of consumers in 2010 bought something for themselves during the holiday season [[vii]].  Among our subjects, 60.8% did not purchase a luxury good for themselves in the last month.  Of those who had, 29.6% purchased an item that one no one knew about and only 9.6% purchased something that others knew about.  The likelihood of a luxury purchase was dependent on age: younger subjects were more likely than older subjects to buy items no others saw; in addition, the frequency of not buying any luxury increased with age (p=0.0043). No other demographics were significantly related to purchases.

This result suggests people are more willing than expected by traditional behavioral economic theory derived from Veblen to spend on inconspicuous consumption.  To further explore this notion, subjects were asked if they would prefer a more expensive luxury item that no one could see, or a less expensive item that everyone could see.  The question asked the subjects to consider giving up value in order to display the status good.  In fact, 64.0% chose to have the more expensive but unseen luxury good. The choice was unrelated to demographics, except for a small, non-linear but statistically significant effect of age (p=0.010).

Taken together, the results here suggest that people are willing to spend more to enhance their status relative to their neighbors.  But they are not particularly concerned whether the goods are displayed or concealed.

Inconspicuous Consumption and Self-Signaling

The finding of equivalent value of concealed luxury goods compared to those displayed is a challenge to the traditional theory of conspicuous display of costly signals as a demonstration of reproductive fitness.  The category of concealed luxury goods includes refrigerators and kitchen items bedroom furniture and linens, lingerie and luxury toiletries such as cleansers, soaps, scented candles and bath salts.  Current behavioral economic theory would predict that people would be less willing to pay for concealed luxury goods than displayed ones, because they don’t readily convey status to others. However, the data presented here do not reveal a preference to pay for displayed goods or a habit of buying luxury more often for display.  This same problem arises in the willingness of people to gift money based on status when few others will know.

One explanation could be that people monitor their own actions to insure congruency in their behaviors [[viii]]: “the ‘audience for individual’s symbolic consumption could be themselves.”  Hogg and colleagues propose in this Congruency Theory that people internalize social standards and choose products and brands in a search for intrinsic congruence.

In order to test this congruency theory, subjects were asked about neighbors who displayed luxury items but held common goods in concealment.  In the first survey, subjects were asked to choose a single answer to the question: 

"You admire a neighbor who is always dressed with designer clothes, drives a luxury car and wears expensive

jewelry.  You are invited to your neighbor’s home and there you see common brand furniture, mid-range kitchen
appliances, and drug store brands in the bathroom.  You decide: (a) my neighbor is a discerning shopper, or (b)
my neighbor is a hypocrite."

In the second survey, subjects were asked:

"You see that your neighbor has a luxury car and wears a luxury watch, but when you are invited inside his home, you see he has common brands of kitchen appliances and furniture.  You conclude your neighbor is: (a) discerning shopper, or (b) a phony."

In the third survey, subjects were asked:

"You see a neighbor has expensive luxury cars parked in his driveway.  When you are invited into his house, you see that it is barely furnished with simple furniture.  You conclude that this neighbor is: (a) a careful shopper, or (b) a show-off. "

In the first survey, only 12.9% thought this person was a “hypocrite”, in the second survey only 26.0% thought this person was a “phony”, but in the third survey 62.1% though this person was a “show-off”. In the questions using the term “hypocrite” or “phony”, subjects’ responses were independent of any demographic feature.  In the question using the term “show-off”, men were more likely to characterize it as such than women (70.0% v 59.9%, p=0.0039). Softening the descriptive word increased agreement that this behavior deserved social condemnation, but the criticism was far from universal, and women were more reluctant than men to denounce the neighbor.

These results do not support the congruency theory.  People are not quick to penalize those who are incongruous in displaying luxury publicly and concealing non-luxury goods, but rather considered them “discerning shoppers” rather than “hypocrites”, phonies” or at worst consider them “show-offs”.

A refinement to the congruency explanation is that people signal to themselves to reveal their true nature, which is called “self-signaling” [[ix]].  Each person’s relative reproductive fitness is unknown to oneself at any one time, but it is a subject of great personal interest.  A person therefore does things that demonstrate to herself that she has high fitness value.  It might be by being strictly honest or dutiful to parents and family, by competing in a test of strength such as a marathon, or by being especially vigilant against breeches of morality.  Whether others see these behaviors or not is irrelevant, because the individual does see them and takes note of her own performance and hence sign of fitness value.  A person can also signal to herself that she has high fitness by consuming costly goods that signal fitness, such as consuming luxury goods, whether displayed or concealed.  She is in fact an audience of one for the costly signal event. Thus, the signal has value whether it is displayed in public or concealed in private.

The Self-Signaling Theory explains why people are willing to give more in charity or wedding gifts to preserve status when few else know; why people are equally willing to pay more for either displayed or concealed luxury goods in order to supersede their neighbors; and why they are more likely to buy for themselves concealed luxury goods than displayed luxury goods.  It also explains why they are not willing to give up value in the luxury good just to have it displayed.

People do not expect or require themselves or others to self-signal (there is no requirement for congruency), and so they do not consider it hypocrisy or phoniness for other to only signal with displayed goods.  The Theory of Self-Signaling better explains the results obtained here than more traditional Conspicuous Consumption or Congruency theories.

Devoting Time to Luxury Category

Luxury goods convey a value beyond their price, as a display of status to oneself and others.  The previous questions probed the willingness of subjects to pay for status.  But the intensity of desire can also be measured by the willingness to spend time by waiting.

Subjects were asked:

"At a store you are told you have won one of two prizes of equal value.  One prize is two bottles of a common wine and the other is one bottle of a premium wine.  The common wine bottles are available right away but you have to wait for the luxury wine bottle. How long are you willing to wait?"

The choices are: Not at all, up to 1 hour, 1 to 6 hours, up to 1 day, 1 day to 1 week, and more than 1 week.   Overall 65% are willing to wait for the luxury wine, and 41.3% percentage will wait a week or more for luxury wine.  The frequency of willingness to wait spans all demographics.  There is no correlation with sex, marital status, how subjects viewed their status relative to neighbors, or whether they preferred $100 or $150 in the status question.

In a similar way subjects were asked about the luxury of fashion, pitting the fast pace change of style against the willingness to spend time to get it:

"You win a contest and you can receive a white blouse from a well-known manufacturer immediately, or you can wait and receive a similarly priced blouse in the latest style in the season’s most fashionable color.  How long will

you wait for the fashion blouse, if at all?"

In this case, 70.8% of all people were willing to wait, and 49.8% were willing to wait more than 1 week.  There was no relation to any of the demographic parameters, except sex.  As might be expected from the question, women were more frequently willing to wait (77.7% for women v 63.2% for men) and more women were willing to wait more than 1 week (54.9% for women v 44.1% for men) (p=0.009).

The results for this survey question are surprising.  While other questions in the survey used money to express intensity of feeling, these questions used time – the willingness to wait - as an indication of choice conviction.  Unlike spending money, spending time to achieve goals (such as the willingness to delay gratification) is a characteristic associated with cognitive ability [[x]]. Simply the identification of the wine as a premium brand or the blouse as fashionable was sufficient to create substantial value.

In a related study, the same wine was identified to subjects as either a low price or high price variety [[xi]].  The subjects reported greater experienced pleasantness when tasting the higher priced samples, and experience

greater activation of the medial orbitofrontal cortex, the brain center correlated with rating pleasantness, when tasting the higher priced sample.  The identification of wine as premium or the blouse as fashionable creates a special value in the subject’s mind, such that she is willing to wait long to experience it and will enjoy it more, regardless of its intrinsic qualities.  In this way a luxury good has a greater chance of finding consumer satisfaction than a commodity good, and in a circular reasoning thereby justifies its premium price.

The relationship between time and value also works in the opposite direction.  Waiting itself creates value in the consumer good [[xii]].  In a study, subjects who were asked to wait 13 days to make a decision increased their preference for a higher-end iPod Shuffle device.  In this way, waiting for a scarce luxury good increases its value, and in a circular reasoning thereby makes its acquisition more salient.

Purchasing a luxury good is only not a binary, buy or not, decision, but also a foraging decision about whether to buy or continue to shop. The decision to continue shopping is also a form of waiting, and the willingness of people to defer a purchase may differ between luxury and commodity goods.

Subjects were asked if they would buy or continue to shop if the found the watch they were looking for in the first store at the price they wanted.  In one survey the item was a luxury watch, and in the other it was a common everyday watch.

In searching for a prestige watch, 42.0% said they would continue to shop even after they found what they were looking for.  However, if the watch was a common watch, only 30.6% would continue to shop, a statistically significant difference (p=0.00013).  Although shopping in general is an attractive activity to women and less pleasant for men [[xiii]], here in shopping for a luxury watch more men were willing to keep looking than women (49% v 32%, p=0.00034).  However, in considering buying the common watch, age, not sex, was the factor; as the age of the subjects increased the frequency of those willing to continue to shop declined (p=0.0034).

The results here suggest that people place extra value in luxury goods as expressed in time; time they are willing to wait to receive it and time they are willing to devote to finding it.

Intrinsic Value of Luxury Goods Aside from Price

A difficulty in studying attitudes about luxury goods is separating the feelings they provoke from their affordability.  All people have responses to the offerings but they are only revealed when the personal circumstance of ability to pay is removed.  This was accomplished in the surveys by endowing the subjects with skin care products through someone’s mistake and then asking them to return either the jar of luxury brand skin cream or an increasing number of drug store brand jars.  The goal was to determine how much of a common good is equal to the value of the luxury counterpart, putting aside the cost of the items.

The question was:

"You receive by mistake one package with a bottle of a luxury skin cream and another package with two bottles of

the same size of a drug store skin cream. You see on the packing slips that the two packages are worth the
same.  The shipper asks you to return one.  Which do you return?"

No brand names, performance claims or other descriptions were offered for the skin creams, only that one was a luxury brand and the other a drug store brand.  In the first survey the subjects knew that the two options were of equal monetary value, but in the two later surveys there was no mention of price.

In the first survey, 43.6% would send back the 2 bottles of the drug store brand and keep the luxury brand.  Women were much more likely to make this choice than men (51.2% v 34.7%, p=0.00005), but the choice was not otherwise associated with race, age, marital status or education. The choice to send back the 2 drug store cream bottles was strongly correlated with those who preferred the $100 when others had $50 in the status question (p=0.010).  In the first survey where both questions were asked, those unwilling to wait for the luxury wine were also more likely to send back the luxury cream than those who would wait for the wine (42.9% v 25.0%, p=0.00028).

People have a preference is for the luxury category that is relatively insensitive to the value of the other option.   In second questionnaire, the brands or values of the products were not specified, but the subjects were asked if they would send back the luxury cream when the number of jars in the alternative drug store variety was increased.  When 2 were offered, 78.8% kept the luxury cream; when 3 were offered 75.6% kept the luxury cream; and when offered 5 jars of drug store cream 74.6% still preferred the luxury cream.  Although there appeared to be a trend toward fewer choosing the luxury bottle when the number of drug store bottles was increased, it was not statistically significant.  The findings were robust; in the third survey the question was asked slightly differently so that the subjects were asked which they would keep (one luxury or 5 drug store creams), rather than which they would send back.  In this case 64.2% still kept the luxury cream, and women were even more likely to say so than men (68.5% v 59.5%, p=0.033).

The label of luxury on a product, without brand name, explicit performance claims or pricing cues, created substantial preference in the minds of the subjects that was not easily dislodged, even with an excess number of alternative items.

Fragility of Luxury Category Value

Brands are displays to oneself or others of costly signals of fitness, and they should therefore be sensitive to the perception of their costliness.  Indeed, making a prestige brand too easy to acquire can ruin its value.  But once a luxury good has been purchased, it becomes cloaked with an Endowment Effect [[xiv]], meaning the mere possession of something increases its value to the owner.  The impact of endowment on the judgment of luxury value was explored by asking subjects about their desire for a luxury item after it has been publicly devalued, but in one case before possessing it and in the other case after possessing it.

In the first case, subjects were asked:

"You are on your way to the mall to buy a new pair of designer jeans you have admired.  On your way you pass a thrift shop and the pair of designer jeans you had in mind is in the window.  When you get to the mall are you (a) less likely to buy, (b) more likely to buy or (c) no difference."

Simply observing designer jeans in a non-prestige context reduced their value: 68% of subjects were less likely to buy the jeans after seeing them at a thrift store.  This was independent of demographic factors other than sex.  Women were more likely to change their mind than men (72.7% were less likely to buy v 62.4% for men, p=0.0174).

In the second question, subjects were asked about something that they already owned but did not invest their own money on – a sweater:

"You receive a sweater as a gift that you like very much and are planning to wear to a party.  One day you see a homeless person wearing the same sweater.  Will you still wear the sweater to the party - Yes or No?"

Here the answer was different once the goods were possessed.  91.4% of subjects said that they would still wear the sweater after seeing it on a homeless person.  The answers were independent of any demographic.

The answers to the two questions suggest an extension of the Endowment Effect to displaying luxury goods.  Prior to possession, the ability of luxury goods to convey status is fragile and can be degraded by association in the wrong context.  However, once in a person’s possession, the goods gain insulation from such adverse association.  This observation supports the use of give-away marketing techniques that put brand items in the hands of target customers, and thereby endow the brand with value and immunizes it from devaluation.

Discussion

Status, which is the recognition of the inequality of people in health and wealth, is one of the human universals, found in every human culture studied everywhere in the world, at every stage of economic development [[xv]].  People by their nature are optimistic about their status, and the survey results presented here show that people are much more likely to believe that they are better off (higher status) than worse off (lower status). Status is not just about how much money one has, but also about what one has relative to others. The surveys showed that 50-60% of people are willing to give up money as long as they have more than those around them.  This desire for status was independent of the major demographic variables of age, sex, race, martial status and education, consistent with Brown’s observation of the universality of status in human culture.

Luxury goods are one way that people acquire status.  They are costly signals that carry a premium above and beyond the utility of the goods.  A luxury brand name attached to goods increases their value in the consumers’ eyes, beyond the contribution of the high price [3].  Among the survey population, 15-30% were willing to pay more for goods just to acquire status by surpassing their neighbors.  This was true whether the neighbors were better or worse off than themselves, and whether the goods were displayed publicly or concealed inside the house.  This was equally true between men and women, and among races, ages, marital status and education levels.

A particularly interesting facet of this desire for luxury status was the willingness of more than 40% of subjects (and more than 50% of women) to give up 2 bottles of a common brand skin cream to keep 1 bottle of a luxury brand, even when they were of the same total value. This expressed preference was not dislodged when up to 5 bottles of the common brand cream was offered.

A similar type of choice study was performed with monkeys and their brains were scanned using fMRI while they chose. They were offered either a small fixed amount of their favorite grape juice or increasing amount of the less favored dilute cranberry juice.  As the amount of the less favored juice was increased in the offer, the orbitofrontal cortex (OFC), which encodes the chosen value, was increasingly activated  [[xvi]].  In a similar way the survey questions offered subjects an increasing amount of the less favored common brand as an alternative to the favored luxury brand.  But rather than having more utility value (sweeter taste in the monkey experiment) the luxury cream choice had less utility value (fewer bottles) but more status value, the later of which is encoded in the emotional limbic areas (ventral striatum and the insula) [6].  In fact, people who kept the luxury cream and sent back the 2 drug store cream bottles of equal value were more likely to be those who preferred $100 when others had $50, rather than $150 when others had $300.  This suggests that these brain regions encoding both product value and status value interact when consumers contemplate the choice of luxury goods.  This is certainly a testable hypothesis.

People are willing not only to spend money to achieve status but also to spend time.  Spending time is different than spending money, because lost time cannot be recovered later.  In addition, a relative increase in spending may be a driven by impulsive buying, but relative increase in spending time by waiting is associated with increased cognitive

ability.  Subjects answered that they were willing to wait for a luxury wine compared to a common wine, and willing to wait for a fashion blouse (which may be out of fashion later) rather than immediately take a plain white blouse.  This is a sign of status seeking; those willing to wait for the luxury wine were also more likely to keep the luxury cream.  Subjects were also more willing to continue shopping (and thus spend more time) after finding the right luxury watch than after finding the right common everyday watch.  This reinforces the finding that people will pay the premium value of luxury goods with not only money, but with time.

Costly signals of status such as luxury, apart from the value of the good, are fragile.  Prior to purchase, the costly signals in the wrong context, such a status item in a thrift shop for the poor, loses its “cost” and hence more than two-thirds of subjects here decided not to buy.  However, once in a person’s possession, the luxury good becomes endowed with value resistant to context. Even seeing the costly signal displayed by a homeless poor person did

not cause people to discredit the item.  Aside from the wrong context, costly signals are subject to fakery that devalues its “cost”.  This is not a trivial consideration, since the survey here showed that more than one-quarter of people are willing to pay a nominal amount to create a false signal of luxury.

The theory of luxury as Costly Signals of reproductive fitness began with Thorsten Veblen’s formulation of luxury as Conspicuous Consumption.  But since a substantial amount of luxury is not for display this theory was refined to

include the Theory of Congruency, or the desire of people to be consistent in their displays of status to themselves and others.  However, the alternative theory of Self-Signaling proposes that people are concerned with their own level of reproductive fitness, but cannot know it with any certainty. Therefore, they use various signals to themselves to demonstrate their own value, such as overcoming challenges or buying luxury goods.  They are an audience of one and consistency in display to others is not required.  This theory better explains the data presented here than the other theories on several points.

First, subjects who purchased luxury goods for themselves in the previous month were much more likely to have made purchases that were concealed than displayed.  This is inconspicuous consumption, contrary to Veblen’s formulation.

Second, most subjects were unwilling to pay to display a luxury good, such as putting a statue out in front of their home. This is again inconspicuous consumption.

Third, a substantial fraction of subjects were willing to pay extra for goods that exceeded their neighbor, but showed no preference in their willingness for concealed or displayed goods.

Fourth, a majority of subjects opted for the more costly but hidden luxury rather than the less costly but public luxury.

Fifth, gift giving when few else knew was still sensitive to status.  Many subjects were willing to increase their giving to stay ahead of lower status neighbors, but a vast majority was unwilling to do this to compete with higher status neighbors.  If people think they are better off than their neighbors, the Theory of Congruency would suggest that at least some would step up to signal it, but they did not. Donating money activates the same area of the brain, the ventral striatum, which computes the utility of receiving or losing money and evaluates status [[xvii]].  The self-signaling component of charity is consistent with the failure of pure altruism to explain giving [17], including the fact that even people with low incomes donate money to charity.  Glaser and Konrad explain charity by an economic theory whereby the gift is a signal of wealth and status [[xviii]].  The donations proposed in the survey questions were without public attention, and therefore only the Theory of Self-Signaling can explain the results described here.

Sixth, subjects were remarkably unwilling to condemn others who displayed luxury but kept common goods concealed.  They were largely unwilling to consider them “hypocrites” or “phonies”.  This tolerance for incongruent behavior is not consistent with the Theory of Congruency.  But the Theory of Self-Signaling makes no requirement that subjects display their signals to others if they have made the signal to themselves.

​We can now answer the questions posed in the Introduction.  People desire luxury goods because they aspire to high status, but they are more afraid of staying ahead than wishing to surpass those better off.  These aspirations are largely universal, independent of sex, age, race or education, although there are some differences between the sexes based on type of luxury goods (cars for men, skincare creams for women).  People are willing to acquire status by spending both money and time.  The purchase of luxury goods to a significant extent is a self-directed signal demonstrating status as an indication of personal fitness value. 

 
Reference

Appendix I: Survey Questions

Survey 1 was conducted between March 14 and 16, 2012. The only entry criteria were 18 years old or greater and within the U.S. 596 subjects responded.

1. Are you male or female?
o Male
o Female

2. Which category below includes your age?
o 17 or younger
o 18-20
o  21-29
o  30-39
o  40-49
o  50-59
o  60 or older

Education
o  Less than high school
o  High school degree
o  Some college
o Associate or bachelor degree
o Graduate degree

3. Are you White, Black or African-American, American Indian or Alaskan Native, Asian, Native Hawaiian or other Pacific Islander, or some other race?
o  White
o  Black or African-American
o  American Indian or Alaskan Native
o  Asian
o  Native Hawaiian or other Pacific Islander
o  From multiple races

4. Are you now married, widowed, divorced, separated, or never married?
o  Married
o  Widowed
o  Divorced
o  Separated
o  Never married

5.  Compared to my neighbors, I am:
o Better off
o Worse off
o The same

6.  What would you rather have:
o $100 when everyone else has $50
o $150 when everyone else has $300

7.  You are going to a friend’s wedding.  Your neighbor, who is better off than you, is also going.  He tells you how much money he is giving as a wedding gift.  You decide to give:
o Less
o More
o The same

8.  You receiveby mistake one package with a bottle of a luxury skin cream and another package with two bottles of the same size of a drug store skin cream.  You see on the packing slips that the two packages are worth the same. The shipper asks you to return one.  Which do you return?
o The luxury cream

o The two drug store creams

9.  You are considering a certain model of a new car. Your neighbor, who is better off than you, buys that same car and parks it on his driveway.  You can pay a little more for a better model of the same car.  How much more are you willing to pay?
o None
o Up to $500
o $501 - $1,000
o $1,001 - $2,000
o $2,001 - $5,000
o Over $5,000

10.  You are on your way to the mall to buy a new pair of designer jeans you have admired.  On your way you pass a thrift shop and the pair of designer jeans you had in mind is in the window.  When you get to the mall are you:
o Less likely to buy
o More likely to buy
o No difference

11.  You are considering a new bedroom set.  Your neighbor, who is better off than you, buys that same bedroom set.  You can pay a little more for a better set.  How much more are you willing to pay?
o None
o Up to $50
o $51 - $100
o $101 - $200
o $201 - $500
o Over $500

12.  You are going to a charity event with a group of friends.  Your neighbor, who is worse off than you, is also
going.  He tells you how much money he is going to donate.  You decide to donate:
o Less
o More
o The same

13.  You are considering a new prestige watch. Your neighbor, who is worse off than you, buys that same watch and wears it all the time.  You can pay a little more for a better model of the same watch.  How much more are you willing to pay?
o None
o Up to $50
o $51 - $100
o $101 - $200
o $201 - $500
o Over $500

14.  At a store you are told you have won one of two prizes of equal value.  One prize is two bottles of a common wine and the other is one bottle of a premium wine.  The common wine bottles are available right away but you have to wait for the luxury wine bottle. How long are you willing to wait?
o Not at all
o Up to 1 hour
o 1 to 6 hours
o Up to 1 day
o 1 day to 1 week
o More than 1 week

15.  You are considering a new top line refrigerator. Your see that your neighbor, who is worse off than you, buys that same refrigerator because you see the carton on the curb for garbage collection.  You can pay a little more for a better
model of refrigerator.  How much more are you willing to pay?
o None
o Up to $50
o $51 - $100
o $101 - $200
o $201 - $500
o Over $500

16.  You receive a sweater as a gift that you like very much and are planning to wear to a party.  One day you see a homeless person wearing the same sweater.  Will you still wear the sweater to the party?
o Yes
o No

17. You admire a neighbor who is always dressed with designer clothes, drives a luxury car and wears expensive jewelry.  You are invited to your neighbor’s home and there you see common brand furniture, mid-range kitchen appliances, and drug store brands in the bathroom.  You decide:
o My neighbor is a discerning shopper
o My neighbor is a hypocrite

Survey 2 was conducted between September 28 and October 3, 2012.  The only entry criterion was 18 years old or greater in the U.S.  524 subjects responded.

1. Are you male or female?
o Male
o Female

2. Which category below includes your age?
o 17 or younger
o 18-20
o  21-29
o  30-39
o  40-49
o  50-59
o  60 or older

3. Education
o  Less than high school
o  High school degree
o  Some college
o Associate or bachelor degree
o Graduate degree

4. Are you White, Black or African-American, American Indian or Alaskan Native, Asian, Native Hawaiian or other Pacific Islander, or some other race?
o  White
o  Black or African-American
o  American Indian or Alaskan Native
o  Asian
o  Native Hawaiian or other Pacific Islander
o  From multiple races

5.  Are you now married, widowed, divorced, separated, or never married?
o  Married
o  Widowed
o  Divorced
o  Separated
o  Never married

6.  Compared to my neighbors, I am:
o Better off
o Worse off
o The same

7.  What would you rather have:
o $100 when everyone else has $25
o $150 when everyone else has $600

8. You are considering a certain model of a new car.  Your neighbor, who is worse off than you, buys that same car and parks it on his driveway.  You can pay a little more for a better model of the same car.  How much more are you willing to pay?
o None
o Up to $500
o $501 - $1,000
o $1,001 - $2,000
o $2,001 - $5,000
o Over $5,000

9. You by a luxury cream and by mistake a second package is also delivered with two bottles of the same size drug store cream.  The shipper asks you to return one.  Which do you return?
o The luxury cream
o The two drug store creams

10.  You receive a gift certificate for custom-made shirts from a small tailoring shop.  For a fee they offer to stitch a famous logo of your choice onto the shirt.  How much are you willing to pay for the logo?
o None
o Up to $5
o $6 - $10
o $11 - $20
o $21 - $50
o Over $50

11.  You go shopping for a luxury watch and at the first store you find one similar to the one you were thinking about for a price that you can afford.  Do you buy it or continue shopping?
o Continue shopping
o Buy it
12.  You receive an unexpected and large inheritance that will help you and your family.  You go to a professional
financial advisor to decide how to invest it.  He tells you that the world news and indications from the stock market suggest one investment, but his intuition is that the money should be invested in a contrary way.  Which investment do you make?
o The one based on the advisor’s intuition
o The one based on the market news

13.  You are considering a new prestige watch. Your neighbor, who is better off than you, buys that same watch and
wears it all the time.  You can pay a little more for a better model of the same watch.  How much more are you willing to pay?
o None
o Up to $50
o $51 - $100
o $101 - $200
o $201 - $500
o Over $500

14.  You buy a luxury cream and by mistake a second package is also delivered with five bottles of the same size drug store cream. The shipper asks you to return one.  Which do you return?
o The five drug store creams
o The luxury cream

15.  You are considering a new bedroom set. Your neighbor, who is worse off than you, buys that same bedroom
set.  You can pay a little more for a better set.  How much more are you willing to pay?
o None
o Up to $50
o $51 - $100
o $101 - $200
o $201 - $500
o Over $500

16.  You see that your neighbor has a luxury car and wears a luxury watch, but when you are invited inside his home, you see he has common brands of kitchen appliances and furniture.  You conclude your neighbor is:
o  A discerning shopper
o  A phony

17.  You are considering a new top line refrigerator.  Your neighbor, who is better off than you, buys that same
refrigerator.  You can pay a little more for a better model of refrigerator.  How much more are you willing to pay?
o None
o Up to $50
o $51 - $100
o $101 - $200
o $201 - $500
o Over $500

18.  You buy a luxury cream and by mistake a second package is also delivered with five bottles of the same size drug store cream. The shipper asks you to return one.  Which do you return?
o The three drug store creams
o The luxury cream

19.  You are not feeling well and go to see a doctor.  He tells you that the medical literature and clinical studies tell him it is one disease, but he says his intuition says that it is another.  The two diseases require
different surgeries.  Which treatment do you choose?
o The one from the doctor’s intuition
o The one from the medical literature

Survey 3 was conducted between January 4 and 6, 2014.  The only entry criteria were 18 years old or greater and within the U.S.  520 subjects responded.

1.   Are you male or female?
o Male
o Female

2. Which category below includes your age?
o 17 or younger
o 18-20
o  21-29
o  30-39
o  40-49
o  50-59
o  60 or older

3. Education
o  Less than high school
o  High school degree
o  Some college
o  Associate or bachelor degree
o  Graduate degree

4.  Are you White, Black or African-American, American Indian or Alaskan Native, Asian, Native Hawaiian or other Pacific Islander, or some other race?
o  White
o  Black or African-American
o  American Indian or Alaskan Native
o  Asian
o  Native Hawaiian or other Pacific Islander
o  From multiple races

5.  Are you now married, widowed, divorced, separated, or never married?
o  Married
o  Widowed
o  Divorced
o  Separated
o  Never married

6.  Compared to my neighbors, I am:
o Better off
o Worse off
o The same

7.  What would you rather have:
o $100 when everyone else has $75
o $150 when everyone else has $175

8. You by a luxury cream and by mistake a second package is also delivered with five bottles of the same size drug store cream.  The shipper asks you to keep one and return one.  Which do you keep?
o  The luxury cream
o  The five drug store creams

9.  In the last month I bought a luxury item for myself
o  Not at all
o  That very few others know about
o That others will see

10.  You win a contest and you can receive a white blouse from a well-known manufacturer immediately, or you can
wait and receive a similarly priced blouse in the latest style in the season’s most fashionable color.  How long will you wait for the fashion blouse, if at all?
o Not at all
o Up to 1 hour
o 1 to 6 hours
o Up to 1 day
o 1 day to 1 week
o More than 1 week

11. You receive an inheritance of a prestigious sculpture by a well-known artist.  You can display it inside your home, or you can display it outside your home if you pay a local government tax.  How much are you willing to pay in tax
to display the sculpture?
o None
o Up to $50
o $51 - $100
o $101 - $200
o $201 - $500
o Over $500

12.  You go shopping for a common everyday watch and at the first store you find one similar to the one you were thinking about for a price that you can afford.  Do you buy it or continue shopping?
o Continue shopping
o Buy it

13.  I would consider an anti-aging product:
o So I don’t look close to being old
o So I look closer to being young
o I would not consider it

14.  You see a neighbor has expensive luxury cars parked in his driveway.  When you are invited into his house, you see that it is barely furnished with simple furniture.  You conclude that this neighbor is:
o A careful shopper
o A show-off 

15. I would rather have:
o A more costly luxury item that no one could see
o A less costly luxury item that everyone could see.

 
Appendix II: Survey Demographics