How we change what others think, feel, believe and do
The Veblen Effect
The Veblen Effect occurs where people buy more expensive goods when there are cheaper alternatives available.
Veblen goods are those which are particularly subject to the Veblen Effect. Any luxury-goods market is likely to have a significant number of Veblen goods.
A man buys a larger car than he needs because he believes his friends will be impressed.
A woman buys designer clothes because she feels others will think she is of a higher social class.
In social desirability bias, people act in ways that will maximize the esteem they believe they will get from others. This can make spending more on goods a rational decision when the value gained is understood as a combination of both product functionality and social status. This appears in 'conspicuous consumption' where an important reason why people buy goods is in order to look good. In such situations, it becomes necessary to display purchased goods in social settings, and hence focus on buying goods that can be used in this context (for example buying expensive clothes or cars).
The Veblen effect is related to the price-quality heuristic, where there is an assumption that more expensive items are somehow superior. In particular there can be an assumption that the superiority of the product reflects on the person buying it, making them somehow superior also.
There is also a 'Counter-Veblen Effect', where people believe they will be admired for buying bargains or for being prudent in their purchases. This can be seen where people boast about how little they paid for a normally expensive item. It can also be a motivator for buying in sales and low-cost outlets.
The Veblen effect is named after American economist Thorstein Veblen, who wrote about the way people seek status through spending at the end of the nineteenth century, and who first named this as 'conspicuous consumption'.
Veblen, T. B. (1899). The Theory of the Leisure Class: An Economic Study of Institutions. London: Macmillan.