Self-Consumed; Luxury Goods are not Only Status Symbols, They Provide Psychological Armour as Well

LONDON, April 8, 2010 - 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 of 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
behavior."

For media enquiries please contact: Katherine Lakeland, Press Officer, London Business School, klakeland at london.edu, +44(0)020-7000-7203