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Why is it that individuals with low incomes tend to spend a proportionally larger percentage of their salaries on conspicuous consumer goods than those who earn higher incomes?

In new research published in the Journal of Experimental Social Psychology in May, Niro Sivanathan, assistant professor of organisational behaviour at London Business School and PhD candidate Nathan Pettit of the Johnson Graduate School of Management at Cornell University say that the explanation goes beyond that of seeing luxury goods as status symbols.

Purchasing conspicuous consumer items they say is in part a psychological response from individuals when they believe that their egos are threatened. It is says Prof Sivanathan, a sort of “psychological armour”.

The paper “Protecting the self through consumption: status goods as affirmational commodities” examines conspicuous consumption and what causes people to spend this money in the first place.

“Our research shows that part of the impetus behind these consumption decisions is the desire to repair self-threat,” says Prof Sivanathan.

Threats, such as threats to social esteem or status for example, often result in a desire for high-status goods say the pair.

In a series of studies Prof Sivanathan and Mr Pettit examined consumer behaviour and consumption. In one study they found that when survey participants were given negative feedback, information that “threatened their self worth” the value that they then placed on high status goods increased. In fact, the academics discovered that negative criticism persuaded individuals to pay more for conspicuous consumer goods than when they were given either positive feedback or indeed, no feedback at all.

In further studies into consumer spending which looked at the link between annual household income and self esteem, Prof Sivanathan and Mr Pettit found that “bruised self esteem plays a role in the desire of low-income individuals to acquire status goods”.

The pair suggest that such behaviour could have implications for government policy decisions aimed at tackling consumer debt.

And in further research into consumer behaviour, researchers from Stanford University in California have found that in online experiments, indivduals were more likely to buy an iPod from a white seller than they were from a black seller.

Jennifer Doleac and Luke Stein posted online advertisements on websites across the US. In some the digital music player was held by a light-skinned hand and in others by a dark-skinned one. In those advertisements where the iPod was held by a black hand there were 13 per cent fewer responses and 17 per cent fewer offers than those advertisements where the iPod was held by a white hand. White sellers were also offered more money than black sellers.

The pair found that the difference between the two sellers was most pronounced in those areas where the crime rate was high or where black and white people tended to be geographically separated from each other. The western US was the only region where there was not a statistically significant difference between the two sellers.

“We were really struck to find as much racial discrimination as we did,” says Ms Doleac. “On average it’s a younger, more educated group of people shopping online and if anything they probably discriminate less than the population as a whole.”

The pair suggest that the negative effect of race would be of far greater significance in the general population.

The Stanford Institute for Economic Policy Research funded the research.

Copyright The Financial Times Limited 2017. All rights reserved.
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