‘You’ve found market price when buyers complain but still pay.’ –Paul Graham
Economists have long argued that individuals, particularly those in the lower socioeconomic stratum, engage in conspicuous consumption to signal their status in society. Since one’s income, a common marker of status, is not visible to others, individuals can speciously signal their wealth by displaying products that are a surrogate for income, such as luxury watches, expensive cars, and designer clothes. Alternatively, a psychological perspective on this phenomenon suggests that status consumption is driven by a desire to restore various forms of self-worth. For instance, aversive psychological states such as powerlessness and self-threat drive individuals to consume status goods for their compensatory benefits.
We contend that this desire to protect and restore one’s self-worth affects not only what is consumed but also how it is consumed—purchased through credit versus cash. Specifically, the very same psychological force (i.e., threatened self- worth) that compels individuals toward status consumption may also increase individuals’ likelihood of consuming these goods through credit rather than cash.
painting { Alex Gross }
