Expensive watches and other Veblen goods

A few months ago, my trusty old Seiko died and I found myself in the market for a new watch.  I ended up buying a $100 Seiko, solar-powered this time so that I don’t have to change the battery. It looks good and keeps time perfectly.  Why spend $1,000, $5,000, or $10,000 on a watch that does nothing more than my $100 Seiko?

The answer, of course, is status. Thorstein Veblen got it right in his classic Theory of the Leisure Class:

Conspicuous consumption of valuable goods is a means of reputability to the gentleman of leisure.

And:

Since the consumption of these more excellent goods is an evidence of wealth, it becomes honorific; and conversely, the failure to consume in due quantity and quality becomes a mark of inferiority and demerit.

This leads to the perverse phenomenon of the “Veblen good”: a good for which demand increases as the price increases, because the high price is essential to the item’s exclusivity, and exclusivity begets status. Luxury brands need to maintain their high prices, lest the hoi polloi begin to partake. Louis Vuitton is learning this the hard way in China:

Still, brands that become too accessible are less appealing to superrich buyers. Louis Vuitton, for instance, is considered a “brand for secretaries” by many wealthy Chinese.

“Louis Vuitton has become too ordinary,” a billionaire woman told China Market Research Group managing director Shaun Rein in 2011. “Everyone has it. You see it in every restaurant in Beijing. I prefer Chanel or Bottega Veneta now. They are more exclusive.”

That same article includes this “pyramid of luxury brands” (click to enlarge):
luxury

Granting that status has some value, I still have to ask: is it worth it? Does the cachet of wearing a Patek Philippe justify the price?

121 thoughts on “Expensive watches and other Veblen goods

  1. phoodoo,

    So the answer is no, you haven’t read the study and you cannot identify a single flaw in it.

    That was easy.

  2. Anyway keiths, could you please start a separate thread on this, this is revolutionary. I think we may have found out why some many people aren’t earning a fair living in America-its their Google habits. Tennesseans and people from Connecticut just waste way too much time searching for silverware-instead of working together as a community organizing swap meets.

    Will you please start the new OP, thanks partner. Let’s work together to figure this out.

  3. keiths:
    phoodoo,

    So the answer is no, you haven’t read the study and you cannot identify a single flaw in it.

    That was easy.

    Have you read it? Tell us about it. You can afford it, you saved money on your watch (sort of, I mean not as much as you could have saved of course) for important things like this right?

    Maybe you can help us all by starting a thread to show us just how relevant it is?

  4. phoodoo:
    keiths,

    This has got to be one of the funniest psychology papers I have heard mention in a while (though admittedly there are a lot of nonsense papers in these journals).

    “70% of the search terms in states with higher income equality were for luxury goods.0% of the search terms in states with lower income inequality were for luxury goods. ”70% to 0! Haha, yea right!

    Keiths, when you see such a ludicrous result as this, you might want to use just a tiny, eeny weeny bit of skepticism in your thinking.I realize as a “skeptic”, that is contrary to your methodology, but maybe try it once.

    Your incredulity is the result of mis-reading the abstract. What it actually says is “0% of the 40 search terms used more frequently in states with less income inequality”. Different kettle of fish altogether.
    You might want to go easy on the mockery, and focus instead on the reading comprehension.

  5. I hate to sound like I’m agreeing with phoodoo, but this is psychobabble crap. It is true that marketeers take advantage of irrational behavior, but they hardly invented it. There have been local cultures in which status is conferred by piling up possessions and burning them.

    This is just a variation of courtship display, an outgrowth of sexual selection. Some form of status display would evolve in any economic system.

  6. petrushka,

    I hate to sound like I’m agreeing with phoodoo, but this is psychobabble crap.

    Phoodoo hasn’t yet expressed an opinion on the article, so I’m not sure why you’re afraid of sounding like you’re agreeing with him.

    It is true that marketeers take advantage of irrational behavior, but they hardly invented it… Some form of status display would evolve in any economic system.

    You seem to be reacting to the title without having read the article. Quartz and Asp aren’t denying the deep roots of status-seeking behavior. For example, Quartz says:

    Our brains contain what’s basically a “social calculator” that keeps track of how we think other people are thinking about us—we feel its results as social emotions like pride and shame. Today, it’s typically called “social status,” but that has lingering negative connotations. We found that products are basically extensions of ourselves that reflect who we are—we use them to bond with others who share the same values. Doing this successfully was key to survival throughout human evolutionary history—you really needed allies, friends, and partners to survive.

    The article’s title refers to the contemporary conception of ‘cool’ — a specific manifestation of our perennial status-seeking behavior. Now, I’m skeptical of the idea that ’50s cool is a unique recent invention — for instance, it seems a lot like the flapper culture of the 20’s, by my lights. But by suggesting that Quartz and Asp are denying its deep evolutionary roots, you are being quite unfair to them.

  7. keiths,

    Steven Quartz is a professor of Philosophy and Anette Asp is a political scientist and “neuromarketer”. Otherwise known as “brain researchers” according to the article.

    So when they say our brains contain a “social calculator”, well, I certainly wouldn’t expect keiths to question it. Or when they say “There are four especially damaging myths about consumerism.” Well, stand up and take note! Important science!

    “Doing this successfully was key to survival throughout human evolutionary history…” And of course, it was all about the mutations we got during our hunter gathering period!! Never forget that. Those who didn’t get the mutations were simply weeded out. They survived for a while without the mutation, but ultimately they just got out competed by the better accidental mutation. Monkeys don’t need to be cool though, so they don’t need the mutation.

  8. Since starting this thread, I’m being served ads for expensive watches everywhere I go. 🙂

    Something similar happened when a friend told me about an expensive handbag her mom had given her for Christmas and I made the mistake of Googling it.

  9. Having flamed out on the Walasek and Brown paper, phoodoo is eager to move on to something else in his futile face-saving quest.

    His procedure seems to be something like this:

    1. Observe a commenter linking to something.

    2. Assume without evidence that the commenter agrees with every single point made by the authors of the linked article or paper.

    3. Pretend that the commenter isn’t skeptical enough, again without evidence.

    4. Misunderstand the article or paper and launch a series of ineffective attacks against it.

    5. After a number of failed attacks, bail out and look for something else — anything else — to disagree with in order to save face. Repeat the entire process.

  10. From the UBS report When is enough enough? Why the wealthy can’t get off the treadmill:

    Millennial millionaires are most affected by pressure to measure up and fit in

    Millennials are more insecure and conscious about how their wealth compares to that of peers (68% of Millennials vs. 53% of Baby Boomers). With so much of their peers’ lifestyle and spending information available online and through social media, Millennials are most likely to say they feel pressure to “keep up with the Joneses.” This sense of competition manifests itself in their career decisions and personal behavior. For example, Millennials are more likely to feel pressure to work long hours (49% of Millennials vs. 28% of Boomers). Three-quarters of Millennials have checked online for their peers’ salary, career history, home price or purchases (74% for Millennials vs. 57% for Boomers).

    Question: “How much pressure do you feel to ‘keep up with the Joneses’?” (Percentages show those who feel at least some pressure.)

    Swing/WWII 14%
    Boomers 22%
    Gen X 44%
    Millennials 48%

  11. The other day I was reading an evolutionary explanation of stotting in terms of costly signalling, and it made me think of expensive watches and other examples of conspicuous consumpiton as a human form of this sort of signalling. That, in turn, reminded me of this thread.

    Some Googling turned up this interesting proposal for how to curb the wastefulness of costly signalling without preventing people from indulging in it.

    The basic idea is to convert a relatively cheap item into a prestige item by taxing the hell out of it, then using the proceeds to fund socially desirable things like education.

    As long as others know what you paid for it, it still serves its function as a costly signal. And the fact that the proceeds do something useful enhances the cachet while benefitting society.

  12. keiths:
    The other day I was reading an evolutionary explanation of stotting in terms of costly signalling, and it made me think of expensive watches and other examples of conspicuous consumpiton as a human form of this sort of signalling.That, in turn, reminded me of this thread.

    Some Googling turned up this interesting proposal for how to curb the wastefulness of costly signalling without preventing people from indulging in it.

    The basic idea is to convert a relatively cheap item into a prestige item by taxing the hell out of it, then using the proceeds to fund socially desirable things like education.

    As long as others know what you paid for it, it still serves its function as a costly signal.And the fact that the proceeds do something useful enhances the cachet while benefitting society.

    Isn’t that kind of what charities do? Pay a lot more for a fine meal than they’d pay elsewhere, and get some entertainment usually again at “inflated prices.”

    I’ve thought it interesting to watch a show like “American Greed,” showing scammers being “generous donors” to various charities. Of course, when the scam blows up the charities have to give the contributed money back, or pay clawbacks if they made money off of a Ponzi scheme. You know that the scammers weren’t contributing to charities out of the goodness of their hearts (most have none of that), and I doubt that many other rich people really do either. It’s a kind of conspicuous consumption that, fortunately, often benefits others.

    That’s probably about as far as it’ll go. You could try to tax a cheap thing (and I suppose the government would have to enforce a state monopoly on it) and make high profits off of that, but that thing would probably be a luxury that would be at the whim of fads. And I doubt that governments would be great at anticipating fads.

    I think some governments have tried to monopolize the national gold trade and in essence “taxing” it. In a way, that might work to some degree for some countries. But gold is a useful commodity, and paying a “luxury tax” on gold in the price of your computer or smartphone wouldn’t be popular, or helpful to exports. Then there’d be gold smuggling and other illegal gold trade, and one has to wonder if it would be worth it. I doubt it.

    Glen Davidson

  13. GlenDavidson,
    Might work with marijuana, cocaine etc. Decriminalizing, state monopoly on supply, heavily taxed. I guess it would negatively impact the prison industry, though.

  14. Alan Fox:
    GlenDavidson,
    Might work with marijuana, cocaine etc. Decriminalizing, state monopoly on supply, heavily taxed. I guess it would negatively impact the prison industry, though.

    Yes, although I don’t think that’s really an issue of making a prestige item out of something cheaply produced. More like an extension of tobacco and alcohol taxes.

    As far as I can tell, it’s not a bad way to go with marijuana. In the states with legal pot the tax is high, but I think most people would rather go with legal pot than with somewhat cheaper black market weed. At least the illegal trade is reduced, and there doesn’t seem to be much, if any, increase in use.

    I don’t know if it would work with harder drugs. Maybe, but the various fads of opiates and other drugs in the US seem to give reason for doubt.

    Glen Davidson

  15. Glen,

    Isn’t that kind of what charities do? Pay a lot more for a fine meal than they’d pay elsewhere, and get some entertainment usually again at “inflated prices.”

    It’s similar, but the audience of the “costly signal” is diminished compared to something like an expensive watch, car, or house. The watch is especially effective because you wear it.

    I’ve thought it interesting to watch a show like “American Greed,” showing scammers being “generous donors” to various charities. Of course, when the scam blows up the charities have to give the contributed money back, or pay clawbacks if they made money off of a Ponzi scheme. You know that the scammers weren’t contributing to charities out of the goodness of their hearts (most have none of that), and I doubt that many other rich people really do either. It’s a kind of conspicuous consumption that, fortunately, often benefits others.

    I’m perhaps less of a cynic than you. I think there are many rich people who do genuinely care about the causes they support. That doesn’t mean that they aren’t simultaneously sending costly signals, though.

    When Mark Zuckerberg gave his $75 million to San Francisco General Hospital, I’m pretty sure it was with the explicit understanding that the hospital would be renamed “Zuckerberg San Francisco General Hospital”. Now that’s a costly signal.

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