Signaling your preferences
People typically buy things to serve a need. Also, most of us like to serve that need in the least expensive way possible. But N.C. State University economist Mike Walden says there are times when buying meets other objectives.
“We call this conspicuous consumption. And (there are) many examples of it: For example, a business executive might purposely buy a very, very expensive suit in order to signal his status or her status to clients or a builder. Someone who’s in the business of building homes might build a gigantic luxury home — more space than his family or her family needs — in order again to signal their success, signal the fact, ‘Hey, we can buy these, build these big fancy homes.’
“So, this is a quite common motivation. Where it’s come into play recently is with fuel-efficient cars. There’s a new study out that argues that buyers, particularly of hybrid cars, may actually pay more than the value of the hybrid car to themselves — that is, pay more than what they’re ultimately going to save in terms of better fuel efficiency simply to signal to the public that they are in favor of green cars. They’re in favor of saving the environment. They’re in favor of doing things to better the long-run health of the environment.
“So, again, this could be another example of conspicuous consumption. In fact, the researchers of this study found that the average buyer of a hybrid car may be paying a couple of thousand dollars over what they’re going to save in order to fulfill this motivation.”Category: Economic Perspective