Impacts of Interdependencies between Strategies on an Individual's Increase in Relative Status - An Exploratory Study

Master's Thesis, 2011

258 Pages, Grade: 1,0



List of Figures

List of Tables

List of Abbreviations

1 Introduction

2 Current State of Research on Status
2.1 The concept of status
2.2 Reasons for Individualism
2.2.1 Conspicuous Consumption
2.2.2 Status Consumption vs. Conspicuous Consumption
2.2.3 The New Individualism
2.2.4 Expenditure Cascades
2.2.5 Positional Goods
2.2.6 Externalities
2.2.7 Positional Treadmill
2.2.8 Dependence Effect
2.2.9 Interim Conclusion
2.3 Economic Perspective
2.3.1 The Assumption of the Rational Individual
2.3.2 From the Absolute to the Relative Income Hypothesis
2.3.3 Displacement of the Relative Income Hypothesis
2.3.4 Acknowledgement of the Relative Position
2.3.5 The Role of Taxes
2.3.6 Income and Status Seeking
2.3.7 Interim Conclusion
2.4 Social Perspective
2.4.1 Sociological Perspective
2.4.2 Psychological Perspective Signalling status Theory of Cognitive Dissonance The role of diversification and Economic Growth
2.4.3 Political Perspective
2.4.4 Cultural Perspective
2.4.5 Interim Conclusion
2.5 Integrating View on the Different Disciplines

3 Derivation and Description of the Framework
3.1 Original antecedents
3.1.1 Self-Concept Independent Self-Concept Interdependent Self-Concept
3.1.2 Self-Monitoring
3.2 Psychographic and Demographic Factors
3.2.1 Education, Culture and Tradition
3.2.2 Expenditure Cascades
3.2.3 Signalling
3.2.4 Externalities
3.2.5 Disposable Income
3.2.6 Envy
3.2.7 Need for Uniqueness
3.2.8 Cognitive Dissonance
3.2.9 Happiness
3.2.10 Scarcity
3.2.11 Upbringing
3.2.12 Social Mobility
3.2.13 Integrative View
3.3 Strategies to Increase Relative Status
3.3.1 Demographic Implications
3.3.2 Buying rare and Expensive Goods
3.3.3 Change of the Reference Group
3.3.4 Status Races (Overconsumption)
3.3.5 Sharing Instead of Owning
3.3.6 Fraudulent Symbols
3.3.7 New Lifestyles Green Credentials In the Know & Skills Connectivity Beauty & Nutrition Voluntary Simplicity
3.3.8 Redefinition of Status Norms
3.3.9 Status Abandonment
3.3.10 Integrative View
3.3 Proposed Framework

4 The Design of the Study
4.1 Research Questions
4.2 Propositions
4.3 The Purpose of this Study
4.4 The Intended Comparison
4.5 Choice of Research Strategy
4.5.1 Qualitative vs. Quantitative Research
4.5.2 Reasons for the Chosen Research Strategy
4.5.3 Choice of Research Method
4.6 The Conducted Study
4.6.1 Setting Definition of the Sample Recruitment of Respondents Context and Time of the Study Instructions Given to Respondents (Ethics) The Role of the Interviewer
4.6.2 Catalogue of Questions and Conduction of the Interviews
4.6.3 Data Processing Recording of Data Transcription of Data Translation of Data
4.6.4 Credibility of Research Findings Reliability Validity and Generalizability
4.6.5 Data Analysis Computer-Assisted Qualitative Data Analysis Software The Concept of Grounded Theory Open Coding 111 Axial Coding 112 Selective Coding 113 Development of Testable Propositions Development of new Theories

5 Results
5.1 Demographic Implications
5.1.1 Children
5.1.2 Upbringing
5.1.3 Money
5.1.4 Education
5.2 Buying Rare and Expensive Goods
5.3 Change of the Reference Group
5.4 Status Races (Overconsumption)
5.5 Sharing Instead of Owning
5.6 Fraudulent Symbols
5.7 Green Credentials
5.8 In the Know & Skills
5.8.1 In the Know
5.8.2 Skills
5.9 Connectivity
5.9.1 Games
5.9.2 Internet
5.9.3 Social Networks
5.10 Beauty & Nutrition
5.10.1 Beauty
5.10.2 Nutrition
5.11 Voluntary Simplicity
5.12 Redefinition of Status Norms

6 Discussion
6.1 Choice for an Adequate Framework – Veblen vs. Bourdieu
6.2 Bourdieu’s Conceptualization of Social Classes
6.3 Application of Bourdieu’s Model to the Study
6.4 Incorporation of the Defined Strategies into the Previous Results
6.5 Development of a Model for the Practical Use

7 Theoretical and Managerial Implications

8 Limitations and Future Research

9 Summary and Conclusion


List of Figures

Figure 1: Form of a Reference Dependence Utility Function

Figure2: Happiness and Real Income per Capita in the US, 1973-2004

Figure 3: Derivation of the Framework for the Analysis of Relative Consumption Patterns

Figure 4: The Trickle-Down Model and the Trickle-Up Model

Figure 5: Bourdieu’s Conceptualization of Social Classes

Figure 6: Respondent’s Owned Cultural and Economic Capital Applied to Bourdieu’s Model

Figure 7: Respondents Movements from the Owned to the Signalled Cultural and Economic Capital Applied to Bourdieu’s Model

Figure 8: Respondent’s Signalled Cultural and Economic Capital Applied to Bourdieu’s Model

Figure 9: Respondent’s Signalled Cultural and Economic Capital Applied to Bourdieu’s Model and the Incorporation of the Defined Strategies

Figure 10: Summarizing Model of the Interdependencies between Strategies to Attain Status

Figure 11: Proposed Model on the Combined Use of Strategies to To Attain Status for the Practical Use.

List of Tables

Table 1: Differences between Quantitative and Qualitative Research

Table 2: List of Abbreviations of the Sample

Table 3: Transcription Symbols

Table 4: Elements of the Axial Coding Scheme

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

”One desire that is getting stronger than all other demands remains the desire to be unique.” John Galliano, former designer for the luxury brand Dior

Across the literature on individual behaviour, socio-psychology, or economics, consumption has always meant more than just buying and using goods simply for utility and one’s own happiness. Consumers are often willing to pay a higher price than the product is actually worth, which in turn enables companies to demand higher prices for their products. Individuals interact with other people in different roles, situations, and with different intentions, across various institutions and relationships. There is no doubt that individuals try to present themselves in the best light in nearly all possible situations, not only through the consumption of tangible / material products but also through various intangible / immaterial assets they inherit (e.g. certain skills, an MBA from a leading Business School, etc.) in order to signal their status to other people.

The continuous widening of the gap between rich and poor in most industrialized societies since the post-World War II era has increased the social heterogeneity in these societies. While middle class people still had quite a constant purchasing power, a small fraction of top earners acquired a better living standard in terms of material wealth and with an increase in real wages. Thus, while top earners tend to show their achievements by simply possessing but also regularly consuming all types of exclusive products (e.g. houses/mansions, cars, jewellery, etc.), the “average” individual has to find other ways to signal his or her achievements in order to distinguish from the others, i.e. to be as individual as possible. It can be assumed, hence, that the “average” individual rather reaches his/her goal through intangible qualities rather than by means of material goods, since the latter would force the individual to consume beyond his or her financial possibilities. Since, human beings are diverge a lot among each other, it is hard to define a strict rule for the distinction between people of relatively low social status who deploy rather achievements in order to gain respect, on the one hand, and relatively wealthy people, on the other, who use rather tangible products to signal their higher social status.

The increasing drive in people to actively show others their achievements has mainly to do with the emergence of an increasing demand for status in developing and industrialized countries in the last decades. In a traditional individualistic society where consumption is one of the most important indicators for personal success, those who consume the most and the rarest will typically be ascribed the highest status. This traditional understanding, however, turns out rather short-sighted and has changed within the last decades due to an average wealth among people enabling them to afford at least the most basic things in life (e.g. food, property, health). With the increasing wealth and the satisfaction of the basic needs, other values through which individuals try to attain status come to the fore. Today, status inevitably exists in every-day’s life, independently on an individuals’ social level or his/her material wealth. There are just a few standardized goods which are not influenced by a desire for recognition from one’s reference group. The former conception according to which someone was considered status-worthy when consuming more than others or specifically rare goods difficult to access, is still valid in today’s perception, but is indeed too short-sighted. Furthermore, individuals use different strategies to attain status for several reasons. The continuous changes within societies together with the emergence of a pluralistic individualism and, in the course of this, the development of a variety of lifestyles, support the statement that today status can be defined in various ways.

People are confronted with the importance of status in different roles and in different life situations. So, for a strategy consultant, for example, it is of key importance to use the own expertise in a specific industry, and to proof this by the aid of excellent references or the own CV, in order to differentiate from others. In fact, each consultant has to find his or her own unique selling proposition (USP) in a specific field and to achieve that others (i.e. clients) consider the consultancy generally, and the consultant specifically, to be expert in this field for whose help they are about to spend a high amount of money.

The traditional consideration of status as a result of the accumulation of wealth for reasons other than just benefiting from a higher level of consumption itself has been discussed in the literature for centuries. Adam Smith (1759), for instance, points out that individuals accumulate wealth to strive for and finally achieve a specific social position in society. Veblen (1899), Marx (1964) and Hume (1978) then develop this definition further by focusing on the aspect of the relative value of wealth. They argued that human beings do not care about the absolute value of their wealth, but rather on their relative societal rank. The claim that individuals’ satisfaction depends mainly on their relative position within society is supported by various psychological, sociological, anthropological and economic literature about status in general and the importance of the relative position for individuals regarding various aspects in particular, as e.g. money, knowledge, popularity, etc. (Abel 1990; Hopkins and Kornienko 2004).

Since an individual cannot easily put him or herself in a relatively better position compared to others in terms of wealth, there is a potential to gain recognition through other ways in today’s pluralistic society with a variety of accepted lifestyles. The more and more others strive for the same particular object, the greater can be the individual’s advantage over others, if he or she has a relatively good position in the performed area. Notwithstanding the indisputable tendency among individuals to decreasingly be interested in status consumption, but even the conscious consumption of the most expensive or rarest goods can be considered as strategies to gain status. However, individuals more and more try to gain recognition by other skills like eco-credentials, generosity, or even connectivity with others through the Internet. Even a complete denial of consumption as well as a complete retreat from public life is viewed as a new lifestyle, known as voluntary simplicity. The successful conversion of this strategy will especially cause envy among those of the same reference group who strive for the same objective. If, for example, a hardworking manager who used to work a hundred hours a week decides to quit his job and to retire from work and public life, this person may be considered as status-worthy among those in his or her circle of acquaintances who also wish to retire but who have not been able so far to successfully make this desire become reality.

The meaning of the relative position has been widely discussed in the literature. In the economic literature, for instance, the relative utility hypothesis receives plenty of support and is referred to the expression of “keeping up with Joneses” (Clark and Oswald 1996, p. 52). Duesenberry (1949) assumes that the level of tangible physical and intangible human capital owned by individuals determine their utility, which in turn indicates their social status. Therefore, as pointed out by Tournemaine (2007), status seeking in itself provides incentives for human beings to take all kinds of wealth-enhancing measurers which may help them attain and/or increase status.

The hypothesis that the striving for status is able to explain various forms of social behaviour has been confirmed frequently in the literature. As stated above, status in a specific area is only ascribed to those who are considered as outstanding in the eyes of the members of their particular reference group. Futagami and Shibata (1998) show that the value of an advantage through status might be overturned due to the increasing heterogeneity among individuals, which in turn may result in different status rankings of the individuals in a specific area. Therefore, the different strategies individuals deploy to attain status have to be chosen with caution in order to attract a sufficient number of people, which eventually is necessary to reach recognition and thereby status. Pham (2005) argues that people who cannot follow the growth of income in their reference group will experience a reduction of their own welfare and will try to enter new ways in order to recover the former state of well-being and to be satisfied with their own status again.

This European Research Project (ERP) is focused on the described challenge of people in their attempts to attain social status. More precisely, it focuses on the different strategies people apply in order to attain relative status advantages over other people. So far, different strategies have been described individually as silos in the psychological, sociological, economic, and other literature. However, their combined application, which becomes more and more important to attain suchlike status advantages, has not been studied yet. This ERP tries to close this informational gap encouraging thus both researchers and managers (particularly marketing experts) to exhibit a more interdisciplinary view on the different strategies individuals deploy in order to gain a relative advantage, which will be done by analysing how they combine different strategies and on which factors the application of the different strategies depend. This field of research is worth studying because it opens up a new branch of research on social status, which is more relevant than ever due to the emergence of pluralistic individuals who more and more turn away from the view that status can only be attained by increasing wealth, conspicuously consuming products with a high symbolic value, or entering into status races by simply trying to consume more than others. Additionally, the continuous emergence of new lifestyles and a growing pressure to succeed within industrialized nations force people to have situation-dependent reference groups and to redefine their notion of status regularly. The exploration and analysis of the combined use of the strategies and their connection have a huge impact both on further research in this area (for example, the quantitative approach to the problem) and managerial decisions within companies (as, for example, the segmentation of customers, advertising, etc.).

After an in-depth analysis of the literature on status (see chapter 2), in a next step original antecedents and psychographic as well as demographic factors will be defined which support the emergence of different strategies to gain relative status advantages (see chapter 3). Based on the review of the current state of the research on status, twelve general strategies will be identified and described. In a next step, the methodology for the conducted study will be presented (see chapter 4). Due to the exploratory nature of this study, we decided to approach the problem qualitatively by means of semi-structured interviews. All in all, twenty interviews were conducted in German, transcribed and translated into English, and finally analysed with software based on the Grounded Theory Approach (GTA) by Glaser and Strauss (1967). The results of this will then be presented next (see chapter 5), which will be followed by a detailed analysis of the results obtained from the interviews (see chapter 6). The well-known framework of Pierre Bourdieu concerning the conceptualization of cultural and economic capital will be used as a starting point for our analysis. After establishing a relationship between the results from the survey and Bourdieu’s framework, the latter will be modified according to the results from this study, converting it thus from a static situational-based model to a more dynamic one through the differentiation of the herein defined strategies into short-term and long-term strategies. The analysis, eventually, will be concluded with the development of a model which may be used as a starting point for further research or as guidance for practical use. Chapters about the theoretical and managerial implications (see chapter 7), the limitations as well as future research will follow this (see chapter 8), and finally an overall conclusion from this ERP will be drawn (see chapter 9).

2 Current State of Research on Status

The wide literature on social status makes it necessary to tackle the topic from a global and interdisciplinary perspective before the specific concept of this ERP will be further narrowed down. The following literature review emphasizes what is already known in the area of status generally as well as about strategies to enhance social status in particular. Different concepts and theories will be briefly presented and yet unanswered questions addressed in order to justify the choice of the research questions for this ERP (see section 4.1). Status is widely discussed in various scientific areas, reason for which we have decided to divide the chapters, after a brief introduction, into a discussion on status in the different disciplines of research. After a division into an economic and a social perspective, the latter will be further subdivided into the ways in which status has been treated in sociology, psychology, politics, and cultural sciences. We further acknowledge that the discussion of theories about status all too often overlap with other scientific disciplines. Therefore, we also decided to differentiate the various findings based on the criterion of the first discipline for the discussion to emerge. This can be considered as the most logical way of how to structure the existing research in the field of social status.

2.1 The concept of status

The search for status is one of the individual’s main motivations in life and the core to a person’s self-concept and social esteem (Berdahl 2007). The concept of status has its origin in the ancient society where the position in society could only be attained through birth or the order from others. Han et al . (2010) state that this system changed slightly at the beginning of the 18th century with the Age of Enlightenment, when an individual’s position in society was suddenly also judged on the basis of his or her own achievements; thus, well-paid jobs, for instance, were increasingly assigned according to personal education and skills. This led to the trend that affluence became a key indicator of social status. Gasana (2009) points out that most wealthy people spend money to signal their social position and to defend the existing social structure, which is important for them to maintain their privileged position within it. Yet, notwithstanding the vast changes in the last centuries, the core concept of status as a relative construct has not changed. Therefore, status as a global concept can be defined as follows: ”[…] status represents an individual’s social standing or rank order among others within a social system, which is based on prestige, prominence, and respect” (Anderson et al . 2001, p. 116). The further development of this concept is mainly based on an increase of the variables which individuals consider as status worthy and which can all be subsumed under the three above-defined pillars of prestige, prominence, and respect in relation to others. The increase of variables through which an individual can attain status emerged mainly due to new consumption patterns (consumerism) and a consequently increasing pluralistic consumer behaviour (new lifestyles), based on a non-monetary comparison between individuals and more and more used as status-generating strategies of consumers (see section 2.2.3).

Status can thus be determined in two ways: the literature distinguishes between the achieved and the ascribed status. While achieved status describes the recognition someone enjoys based on the own abilities and achievements in specific areas, ascribed social status describes a form of status which is reached without any efforts or achievements, being given simply through birth or else gained effortlessly in later life. For example, the daughter of a wealthy family who can be described only by certain specific traits instead of by her achievements has an ascribed status, but not an achieved one. This latter type of status, in turn, expresses what an individual acquires voluntary in the course of his/her lifetime in the form of knowledge, abilities, or other gained personal attributes, all of which might be achieved, among others, through occupation or education. Now, this ERP will be focused above all on the achieved status, since this is the kind of status an individual attains through his or her own efforts instead of through mere contingency.

Mainly Smith (1759), at the beginning, and Veblen (1899), with some major modifications, create the path in research on the awareness of the importance of status in the process of decision making for many individuals and which can be considered as major prerequisite for the creation of individual welfare. In the following years, more and more researchers observed status from different perspectives, depending on the discipline in which they predominantly publish their works. Hopkins and Kornienko (2004) point out that people care for various reasons about status, while Weber (1946) considers status as the degree of social honour, respect or recognition awarded to an individual by others. Clemens (2006) postulates the “quest for status” which, according to him, reflects an individual desire to outperform others.

According to Postlewaite (1998), a customer strives for status mainly for economic reasons. For example, conspicuous consumption (see section 2.2.1) creates status by signalling wealth through products with high representative effects. Unlike those who are just interested in low prices and direct utility of the products purchased, status-seeking individuals mainly look for significant status gains through the consumption of specific products, being at the same time willing to pay much higher prices in order to achieve the social benefit. Due to the fact that many people relate status to the display of wealth, it can be concluded that the higher the price someone is ready to pay for a specific product, the higher will be the expected benefit from this purchase in terms of social status. Research has shown that this signalling of higher income or higher productivity may enhance a person’s marriage opportunities, which otherwise would perhaps not be the case. However, apart from signalling there are many other reasons why people want to gain status.

There is compelling evidence in the literature on status from biology and psychology that the seeking for status is a deep-seated element in the nature of individuals (Frank 1999). Yet, there is also evidence that people cannot only attain status from the consumption of tangible goods, but also through various other ways, which will be specified in the second part of this chapter. Experiments carried out by Solnick and Hemenway (1998) as well as Huberman et al . (1999) show that people strive for status not only for economic but also for social, more specifically, for emotional reasons. In terms of Maslow’s needs pyramid, the human trait of striving for status can be considered powerful since those with status can override the most basic needs such as food at the very bottom of the pyramid. This indicates that people can easily change their position (i.e. their social rank) through status by simply overriding some steps of Maslow’s pyramid. A simple example of this could be a financially poor person with a low income, who buys for instance a Rolex on loan. This person will attain a relative status advantage by overriding different steps in the Maslow pyramid and will be wrongly considered rich in his or her environment through the status he or she has thus attained. Examples of this observation are widely known and discussed in the literature. For instance, Herskovits (1952) claims that on a small island the farmer who is able to cultivate the largest yams automatically gets the highest status position on the island for being able to easily nourish his family. Mason (1998) states that already in the 18th century Mandeville, who was interested in the phenomenon of conspicuous consumption, mentioned that he had observed many people feeling uncomfortable with being judged as what they were instead of, as they preferred, what they pretended to be through the consumption of conspicuous products (mainly luxury products), which in turn created envy among the others. Mason (1998) further points out that their need for respect, acceptance and uniqueness was so strong that even the poorest were ready to stay without food in order to be able to present themselves well-dressed in public. Belk (1988b) points out that this phenomenon still today can be widely observed in many developing countries. So, Frank (1985) finds that the incentives to seek status are even stronger for the poor than for the wealthy people due to closer ranks within the status hierarchy at the bottom of the income levels than for those at the top of it.

The previous paragraph indicated that the simple translation of status as a way to gain recognition from others through the consumption of tangible products is too short-sighted. There is a multitude of mainly individual psychographic and demographic factors which determine how (i.e. through which strategy or strategies) an individual tries to attain status. There is no doubt that the consumption of tangible products plays a key role in this, but it is also of major importance to point out that the process of consumption can be caused through a variety of other factors, which are not only of economic but also of societal nature. For this reason, we decided to further narrow down the topic based on this general introduction into the research of status over a discussion about individualism and its relation to status before further dividing this chapter into the different streams (i.e. disciplines) in the literature where status is mainly discussed; this shall finally lead to the development of certain strategies individuals use to maximize their relative status compared to others.

2.2 Reasons for Individualism

The examination of individualism became a central focus of research in the 20th century due to developing societies in which individualism became more and more a dominant force. The notion of individualism was mainly dominated by Keynes’ theory of an aggregated consumption function which he developed as part of his General Theory (1936). By ”aggregate consumption”, Keynes understood a positive but diminishing function of aggregate income. Today, a multitude of consumption objectives show a strong relation to typical social motives like status seeking or conformity. Individualism is not limited to only one specific discipline in science, but it overlaps and consists of both economic and social aspects. Therefore, in a next step, with the concept of individualism, we will attempt to convey an interdisciplinary view on the research on status before in a next step different discipline specific theories will be presented.

2.2.1 Conspicuous Consumption

A very important branch in research on individualism is the discussion about conspicuous consumption, because it is closely connected to the research on status and therefore of highest relevance for this ERP. Conspicuous consumption explains what drives individuals to purchase and consume goods entirely for the sake of status they associate with it, without regarding the own income level or social class they belong to. The term conspicuous consumption gives justification to the fact that it is a fallacy to consider the consumption of status goods only as a consumption pattern of the very wealthy (Freedman 1991). In fact, everybody, even homeless people without any income, can gain status through the consumption of specific (i.e. expensive, rare) products which others do not have access to. Thus, Belk (1985, p. 103-104) describes accurately that ”even third world individuals are often attracted to and indulge in aspects of conspicuous consumption before they have secured adequate food, clothing and shelter”.

The importance of conspicuous consumption has already been highlighted by the French jurist and economist Jean Bodin in 1578 (Bodin 1946), who state that people consume goods for other reasons than just the utility of a specific product. The transformation of the discussion about conspicuous consumption and the change from a rather neutral to a more critical perspective was mainly caused by the social, economic and political changes in Europe in the 18th century. In his famous work The Wealth of Nations, Adam Smith (1776 [1937]) mentions that ostentatious consumption is a humanistic necessary social action because the increasing inequality in terms of wealth can become a condition of social peace and continuity for those who are able to successfully transform their consumption patterns into ostentation. Further, Smith (1776 [1937]) argues that this kind of consumption is not only appropriate within a stratified society but is functionally essential for each society in order for it to develop in a heterogeneous way. While early authors like Smith (1759) and others are not able to deal with the topic of conspicuous consumption in a critical way, later authors in the following centuries (e.g. Hume 1978) increasingly reject the views in the field of conspicuous consumption, which were mainly grounded on moral and religious theories. It was already with John Rae (1834) who rejects to follow this path for regarding it mainly driven by vanity. John Stuart Mill (1848) agrees on Rae’s explanations and just added that the indulgence associated with conspicuous consumption should be taxed (Ekelund et al . 1996).

Already Senior (1836 [1965]) establishes the basis for Veblen’s ground-breaking definition of conspicuous consumption by defining the social distinction reached through possession and the display of wealth as those traits among humans with the highest impact. Veblen’s view on conspicuous consumption is completely detached from the former connection to moral and religious grounds. In his famous work The Theory of the Leisure Class, Veblen (1899) concludes that even most individual behaviour is not driven simply the desire to satisfy one’s own basic needs, but rather by the wish to replicate the type of consumption of the respectively higher social classes (“pecuniary emulation”).

Moreover, Veblen (1899) considers conspicuous consumption as an unavoidable consequence due to the emergence of wealth as the major determinant for social position and prestige, both of which being closely connected to status. Veblen claimed further that

”in every community where goods are held in severalty it is necessary in order to his own piece of mind that an individual should possess as large a portion of goods as others with whom he is accustomed to class himself; and it is extremely gratifying to possess something more than others. […] [T]he end sought by accumulation is to rank high in comparison with the rest of the community in point of pecuniary strength.” Veblen (1899, p. 17)

Veblen (1899, p. 56) mentions also that such consumption goods must be both ”wasteful” and visible in order to attract ”[…] the observers whose good opinion is sought”. According to this author, an individual does not only accumulate wealth necessary to finance his or her own aspirations (i.e. to strengthen the individual self), but also to use it as a signalling tool to others in order to develop and justify the status claim within society.

Moreover, Veblen (1899) also looks back and found that conspicuous consumption according to his definition had already occurred across societies for many centuries. He underlined his observation by mentioning a few examples; so he mentioned, among others, the Egyptian pharaohs who displayed their wealth with lots of jewellery, statues and giant pyramids. Based on his examples, Veblen (1899) points out that the process of consuming conspicuously affords significant economic resources in order to reach the intention of communicating information about wealth. In doing so, he especially attached importance to how wealth is accumulated and displayed, pointing out, for instance, that the pure accumulation of wealth is not exactly what accumulates status. What actually conveys status is rather the evidence or the visibility of wealth. Therefore, someone who just accumulates wealth on his bank account is not considered status worthy by others, because the amount of money on the bank account is not visible to them. It is not sufficient, hence, to have a well-paid job and to simply accumulate the money on the bank account without showing the wealth to others by displaying it ostentatiously. Conspicuous individuals distinguish themselves from “ordinary people” by consuming products with relatively high prices in contrast to the broad mass who rather seeks similar but by far cheaper products. Bagwell et al . (1996) mentions that conspicuous individuals are perfectly ready to pay a much higher price for a functionally equivalent product, because they rather buy the status associated to it, which in turn results from displaying it publically. Hence, conspicuous individuals crave for suchlike status advantages since they consider status as an end in itself (Veblen 1899; Duesenberry 1949).

Packard (1959) applies the notion of conspicuous consumption to the modern society by claiming that people’s main motive for consuming products is to demonstrate a superior level of status both to themselves and to others. He thus defined status-seeking individuals as ”[…] people who are continually straining to surround themselves with visible evidence of the superior rank they are claiming.” The expression of status describes both the individual’s need for self-recognition as well as his or her dependence on the recognition by others.

After Veblen (1899), many authors further developed the theory of conspicuous consumption both quantitatively and qualitatively. A growing body of literature focuses, for example, on the connection between mating motives and conspicuous consumption, indicating that especially men tend to consume conspicuously in order to attract women (Miller 2000; Griskevicius et al . 2006; Saad and Vongas 2009). They found out that conspicuous consumption can be characterized as a sexually selected mating tactic, particularly among males. This indicates that conspicuous consumption in general and the signalling of wealth in particular and thereby causing envy to others, may lead to a status advantage putting men (in this case) in a positive light and making them more attractive for women. Roney (2003) reveals that men place greater emphasis on obtaining wealth when being physically near to women. By the same token, Griskevicius et al . (2007) state that men’s desire to purchase expensive products particularly increases when potential mating partners are around. Saad and Vongas (2009), on their part, find that the opportunity to consume conspicuously leads to an increase in testosterone, which has been linked to the display of male dominance across species in biology. Li et al. (2002) state that women across different cultures can find evidence for a man’s economic resources or his chances to acquire them through conspicuous consumption. The further chapters of this ERP will show that this statement is too general for various reasons. For example, there is no clear rule that just wealthy people can consume conspicuously, because especially poorer people are attracted by the easiness of displaying wealth through the signalling effects of certain products. Another example is the display of wealth through “fraudulent” symbols (e.g. imitations), which is widely used as strategy (see section 3.3.6), especially by poorer people, in order to appear richer to others and likewise by sending fraud symbols to others they want to leave great impression on. Sundie et al. (2010) find that men show a higher motivation to consume conspicuously in order to signal their economic success than women. The study further revealed that the ideal conspicuous individual is almost always described as being of male sex. Based on these results it can be assumed that females rather tend to derive their status from other things than conspicuous consumption. It is a fallacy, however, to conclude, based on the findings in the conspicuous consumption literature, that women would not show a status seeking behaviour to a similar degree as men do. The conclusion should rather be that women tend to prefer other ways for status seeking. The following sections, and particularly chapter 3, will cover most of the different sources for attaining status by defining certain strategies followed by individuals.

Of course, it is also important to consider that conspicuous consumption should not be equated to luxury consumption, since it is a concept which focuses on the signalling aspect and the creation of envy to others, which can also be reached by means of other than luxury products (e.g. through the consumption of rare products). Chaudhuri and Majumdar express the notion of conspicuous consumption even more generally stating that the

”preoccupation with limiting conspicuous consumption to luxury consumption may be all the more incorrect. People could choose to buy and display any product which is different merely for the sake of being different from other individuals.” Chaudhuri and Majumdar (2006, p. 7)

Now, since conspicuous consumption cannot be limited to the consumption of luxury goods, it is obvious that the meaning of conspicuous consumption both for researchers and marketers has continuously increased throughout the last centuries due to the emergence of individualism in most developed (democratic) societies. Since conspicuous consumption, as has been proven, is a source through which people can attain status, it can be concluded that the conspicuous consumption of goods and the display of wealth as well as causing envy to others is an increasingly used means among people in order to attain status.

The concept of conspicuous consumption has also been examined in some empirical studies. For example, Chung and Fisher (2001) examine conspicuous consumption patterns of immigrants to Canada. In another study, Frank (1999) finds that the concept of conspicuous consumption serves as a key driver for household expenditure and savings in the U.S. Finally, Bloch et al. (2003) conclude in a study on Indian households that the aim to signal status (i.e. the aim to consume conspicuously) can explain a difference in the willingness to pay for weddings in India. These examples demonstrate that an individual’s spending behaviour is not at all rational and that the amount of money spent on specific products largely depends on the consumer’s willingness to signal something by it. As soon as an individual wants to signal something with the help of a certain product, he or she is mostly ready to even pay a price premium and to pay, after all, more than the examples might suggest. Therefore, it can be concluded that the success of conspicuous consumption in the form of signalling a specific status or something else is mainly determined by the price someone is willing to pay for a particular object. This readiness depends on various, mainly social, factors which basically determine an individual’s relative position and thereby the chance of attaining status through such a conspicuous consumption of a specific product.

2.2.2 Status Consumption vs. Conspicuous Consumption

Especially in the first decades after Veblen (1899), who had redefined the term of conspicuous consumption, there was no clearly visible differentiation in the literature between the terms status consumption and conspicuous consumption. This resulted misleadingly in a significant overlap of the two terms. O’Cass and Frost (2002) even argue that the two terms were even used interchangeably for a long period. The parallel use of the two concepts without any clear definition, however, poses significant theoretical and empirical problems.

Many authors started to question this interchangeable use of the two terms. Eastman et al. (1999), for instance, mention that status consumption is based on conspicuous consumption. Other authors, in turn, deliberately distinguish one from the other in order to discard any overlap of the two concepts, pointing out that while conspicuous consumption refers to Veblen’s approach of using products as signals of social status aspirations to other individuals in order to improve one’s own position, the term status consumption goes further and describes rather a process which involves the purchase of goods that already represent status to both the individual and those in his or her social environment. So, while in more traditional (rather hierarchical) cultures the opportunity to conspicuously consume is rather limited to the wealthy elites or to those who want to belong to these elites, status-directed expenditure in more industrialized (and less hierarchical) cultures can be observed throughout all social levels due to an increasing equalization in terms of income and therefore of one’s economic opportunities.

In order to draw a clear distinction between the two concepts, conspicuous consumption will be defined, according to Chen et al., as follows:

”[Conspicuous consumption is] the extent of one’s behavioural tendency of displaying one’s social status, wealth, taste or self-image to one’s important reference groups through consumption of publicly visible products.” Chen et al. (2008, p. 686)

The focus in this case is on the word “products”, which implies that conspicuous consumption should be mainly described as a matter of status which may be attained through the consumption of tangible products. In contrast to most authors (e.g. Eastman et al. 1999), status consumption will not similarly be based on the consumption of tangible products, but includes also the consumption of new lifestyles, attitudes, trends, looks, etc. which can be used by consumers to build up status. Therefore, while conspicuous consumption focuses entirely on the creation of status through tangible products, status consumption in this case goes one step further including not only tangible products but also intangible aspects (e.g. lifestyles, attitudes, trends, etc.) which can be used by individuals to increase their relative social status, too.

2.2.3 The New Individualism

The notion of individual behaviour in the literature further evolved throughout the 20th century. The emergence of mass media advertising, the Internet as well as faster ways of transportation significantly raised the living standards of individuals. The existing consumption patterns in the last part of the 20th century have been described as ”new individualism” by Schor (1998). This definition can be just considered as the tip of an iceberg which consists of a new body of research emphasizing the role of interpersonal comparisons and status seeking and which has been conducted by many different researchers (Hirsch 1976; Scitovsky 1992; Frank 1985). A central outcome of that new individualism consists in aspiration gaps which caused people to live beyond their financial opportunities in order to keep their relative social position in the race, which can also be more specifically described as “status race”. The resulting overconsumption out of these status races can be considered as another strategy people use to increase their relative status position within society or their particular reference group.

Schor (1998) bases his definition of the new individualism on his general observation of a growing obliteration of the different social levels. It has become more and more easy for poorer people to get access to higher social levels, but on the other hand the risk of climbing down the social ladder has increased, too. Among other things, an increasing number of members of the middle-class began comparing themselves to certain members of higher social levels including even their own relatives, colleagues, neighbours, friends, but also foreigners in order to emulate them by trying to keep up, for example, “with the Joneses” (Hopkins and Kornienko 2004). Scitovsky (1992) argues that desire for status on behalf of the people of the “new individualism” is more than simply the wish to ensure their own group membership. According to Scitovsky (1992), it lies in the nature of human beings to seek distinction and recognition within their groups and that to continuously strive to fulfil one’s wishes.

2.2.4 Expenditure Cascades

A side effect of this “new individualism” is a steadily growing income inequality in many industrialized nations. The most common characteristic of this is that while top earners experience a remarkably high income growth, those with lower earnings experience no or even a negative increase in real wages. The growth in the income inequality between the richest and the poorest is the main reason why the disposable income has emerged as one of the key psychographic factors for status inequality and for certain strategies of individuals in their attempts to increase their relative status.

Results from a research study conducted by Frank (1999) indicate that the increased income growth fuels top earners to spend even more money. This phenomenon can be explained by the emergence of so-called expenditure cascades, which are triggered by an individual’s drive to outperform others or to be at least not worse off than others. The consumption patterns of the wealthy people lead to an increased spending in the social class directly below them, a chain that continues down to the poorest people. This in turn leads to the severe situation of overconsumption especially among those with a relatively small proportion of disposable income. Expenditure cascades are a severe phenomenon because in the majority of the cases people enter into these expenditure cascades not purposely and they spend more money than necessary due to their internal drive to maintain or improve their relative social status. Especially for poorer people expenditure cascades can have severe outcomes because they will have even less disposable income to keep up with other spending habits. The widespread occurrence of expenditure cascades, as explained by Frank (1999), confirms the competitive motive underlying today’s individuals’ behaviours. A result of this found by Frank (1999) is that the big variance between real wages in some countries just favours the richest classes, while the middle part in the income distribution neither profits nor loses, and the poorest part of the income pyramid are subject to declining real incomes. Frank (1999) further argues that the expenditure cascades are particularly caused by this inequality. This may result from different new and widely spread behaviour patterns which also depend on the income levels. The pressure to keep up with others can be expressed, for example, by people from the middle-class who work longer hours or even look for an additional job.

According to Frank (1989, 1999), the phenomenon of always trying to keep up with others lies in the nature of humankind. This author discussed most prominently the natural desire of humans to ”keep up with the Joneses.”[1] The occurrence of expenditure cascades can be explained, thus, with the human’s desire to be equal as or even better than others. The increase in expenditures of a consumer, in turn, is caused by an increase in the expenditures of other individuals who also seek to defend their relative position compared to again others by consuming more than they. It can be widely observed that in spite of a significant increase in income within the last decades / centuries, most individuals do not experience a significant increase in happiness (see section 2.3.4), although they can afford more expensive products. The reason why these people mostly are not able to improve their emotional constitution can be explained by expenditure cascades, too. Frank (1985, 1999) describes status as a zero-sum game. According to the Nash equilibrium, an individual is positioned in the distribution of consumption according to his or her position in the distribution of income. In order to keep or improve the relative social position, each individual increases his or her conspicuous consumption, yet since all others do the same any gain in status must end up cancelled out by the similarly increasing expenditure on the part of the others. Therefore, and together with the previously described expenditure cascades, it is obvious that the proportion of income spent on conspicuous consumption continuously increases. Another reason for the gain in terms of conspicuous consumption is that those whose income does not grow in line or above that of others preferably consume more conspicuously in order to keep up. Khalil (1997) and Baumol (2004) state in this respect that within the game-theoretic literature an upper limit for the expenditure cascades is not discussed. This perfectly befits Veblen’s claim that status is an insatiable human desire (Veblen 1899).

Frank (2004) also gives evidence that expenditure cascades widely evolve through conspicuous consumption by presenting a simple example. He found in an experiment that most people preferred having a larger home than anyone else rather than having an even larger but yet smaller home than the neighbours. He then adapted these findings to the different consumption patterns of individuals and concluded that people will relinquish the consumption of certain goods in order to obtain a better relative position, which in turn gives them a certain degree of status. Therefore, it can be concluded that all the things we wish to have depend on how others value these things or on the kind of things the others possess.

With regard to the topic of this ERP, expenditure cascades and the resulting emotional state can be considered as two factors which should be taken into consideration in the development of different strategies that individuals can use to increase their relative status. Status races in the form of conscious overconsumption are one of the later defined strategies which are closely connected to expenditure cascades.

2.2.5 Positional Goods

The previously described expenditure cascades can particularly be observed for goods which are considered status-worthy, since the concept of status can be described as a relative concept based on the individual’s aim to achieve a relatively high societal position. Therefore, status can be regarded as positional, and consequently an individual’s success in attaining status through the consumption of tangible products may be defined on the basis of his or her attitude concerning the utility function of a specific positional good. Frank (1999) tries to apply his findings on the expenditure cascades to the group of positional goods identified by Hirsch (1976), postulating the term positional treadmill. A positional treadmill describes the wish of individuals to consume positional goods excessively because, according to Frank (1985a, p. 101), positional goods are those goods “[…] whose value depends relatively strongly on how they compare with things owned by others.”

The concept of positional goods was first described by Hirsch (1976) who defines them in terms of their ranking, value and desirability by others. According to his view, all positional goods have in common that they carry high status because the degree of happiness associated with a positional good depends on one’s ownership of this good compared to others. In contrast to both status (e.g. cars) and non-status goods (washing machines, etc.) which can be accumulated with time and sufficient effort, positional goods (e.g. paintings, top-level jobs, houses with a beautiful view) cannot be accumulated but only redistributed, because the supply of these goods is limited and does not grow with the rest of the economy. Thus, contrary to non-positional goods, the growth of the economy and one’s overall level of wealth do not increase one’s chances of acquiring a positional good. It is rather a person’s ability to pay for them which determines the access to these goods one has. The competition on fixed supply of positional goods results in individual frustration, which in turn creates a high degree of envy to those who do not own that particular good. The status attained thanks to positional goods increases with the number of people who are interested in owning positional goods. For example, a beautiful painting from a less-known painter holds less status than a famous painting by Vincent van Gogh, although both could be treated as positional goods.

With respect to our ERP, the concept of positional goods is of key importance since it can be considered as a branch of research in the literature which causes several demographic and psychographic factors to emerge, as e.g. scarcity due to the limited amount of positional goods, disposable income because only few people can afford positional goods, signalling owing to the high value of those goods, need for uniqueness due to their exclusivity, happiness due to the positive feeling gained from the ownership of those goods, and envy towards others who also want to own such positional goods. All these factors are the ground for many different strategies (see chapter 3) used by individuals to increase their relative status.

2.2.6 Externalities

Among other economists, Frank (2008) argues that positional goods can create externalities, or a so-called ”arms race”, for specific goods that according to society can boost one’s status relative to others.[2] The resultant externalities are mainly negative in their nature because the increase in an individuals’ relative status through the consumption of products automatically gives rise to a degradation of the other members of the reference group, although they do not consume them. This new and relatively worse positioning leads the others to consume again in order to get back their relative status position. The continuous purchasing of new products creates thus expenditure cascades which in turn generate positional externalities since such consumption behaviour changes the context within which an existing positional good is constantly revaluated. Frank and Heffetz (2008) compare this process to a prisoner’s dilemma stating that an individual’s attempt to improve the relative status position results inevitably in an inefficient equilibrium, which in turn forces others to react and to thus cause overconsumption.

However, when a good is upgraded or becomes a popular item to own (i.e. the good becomes a positional good whose ownership can create a certain status), this good also becomes a positional externality because the context in which it is perceived and evaluated has changed. Positional externalities can also influence an individual’s happiness since when a human being focuses on possess and what not in his or her environment, he or she may end up recognizing all the possession of the members of his or her self-evoked set of significant others (i.e. his or her reference group). An increased inequality can thus lead to an increasing unhappiness about one’s own position if this position is perceived as relatively weak.

Besides the emergence of externalities through the consumption of positional goods, another example of the impact of externalities is the use of public goods generally, on the one hand, and environmental goods in particular, on the other (Hartwig 1999). Public goods differ from other goods by the fact that nobody within a society can be excluded from their consumption, although they are not responsible or demanded for the “supply” of a specific good in the first place. Once these goods are consumed, the same public good cannot be consumed again by another or the same person. An example of a public good would be electricity, which is no longer available for others after having been consumed. The impact on others’ welfare by the own consumption is considered when determining the resource prices, which results in a gap between societal costs on the one hand and private costs on the other. This difference is what Pigou (1920) defines as externality or external effect. The classical case of consumption externalities can be divided into different categories, among those status consumption externalities exist (Ng and Wang 1993).

Within this ERP, externalities make up one of the psychographic factors which are responsible for the formulation of different strategies used by individuals to increase their relative status advantage.

2.2.7 Positional Treadmill

The discussion on the “positional treadmills” in section 2.2.5 revealed that “status races” (i.e. overconsumption) mostly occur detached from true individual desires (Hirsch 1976). Instead, as Binswanger (2006) points out, the activities of individuals represent “arbitrary” processes of social comparison, being thus the main trigger for the spirals of spending. As previously described, it has been proven that no upper limit exists for expenditure cascades and that they do not improve individual welfare in the long run. Both Frank (1999) and Schor (1999) emphasize the fact that advertisements as well as the media are mainly responsible for the treadmill of spending without attaining any status advantage. They claim that advertisements and the media remind people of their relatively low status compared to the ideal promoted by persons in numerous advertisements. Therefore, apart from the inner drives of individuals, the diverse marketing campaigns and the suggestion of doing things which provoke people to consume are also highly responsible for the emergence of expenditure cascades, especially in developed countries.

The process of expenditure cascades generally and positional treadmills in particular do not necessarily increase welfare or happiness and rather represent a zero-sum game as suggested by Scitovsky (1992). It should have become obvious that expenditure cascades and positional treadmills provide an answer to the question why the continuous income increase of many people does not automatically result in an increased status of the people involved. This is true because the relative difference in terms of income for everybody remains the same. Positional goods can increase happiness, but only at the expense of a decrease in happiness of someone else who consumes less of that good. Therefore, the satisfaction (i.e. status) gains of a person are cancelled out proportionally with the satisfaction losses of another person.

According to Stracca and Al-Nowaihi (2005), individuals evaluate their own consumption level relative to some “reference point”, i.e. to a specific consumption level (see Figure 1). A consumption level above the reference point will result in gains, i.e. in a relative status increase, whereas any consumption level below the reference point will result in losses, i.e. in relative status decrease. In terms of expenditure cascades in general and positional treadmills in particular, there are two factors which are of special interest. Firstly, it is important to consider that consumption preferences relative to a reference point are characterized by loss aversion, according to Stracca and Al-Nowaihi (2005). Hence, outcomes above the reference point (i.e. gains) matter relatively less than outcomes below the references point (i.e. losses) in one’s utility function since positions below the reference point result in unhappiness and frustration showing that the respective individual is not able to keep up with others (or to keep up “with the Joneses”). Secondly, deviances from the reference point are more (less) significant, the less (more) away they are from the reference point. According to Stracca and Al-Nowaihi (2005), this is owed to diminishing sensitivity. These two characteristics result in an S-shaped utility function being convex below the reference point and concave above it. Additionally, according to the first characteristic, the utility function is steeper below the reference point than above it.

Figure 1: Form of a Reference Dependence Utility Function (Stracca and Al-Nowaihi 2005).

So far, no further analysis is available on the question whether the above described comparisons among individuals can be imaged in an S-shaped utility function as mentioned above. This is mainly related to the fact that the existing interdisciplinary literature on status, in this case the behavioural economic and the psychological literature on relative status and positional concerns, has evolved completely independently from each other. This single example, among various others, states the difficulties in applying a consistent and integrated interdisciplinary view on the concept of status.

2.2.8 Dependence Effect

The discussed phenomenon that an increase in consumption does not necessarily generate long-term increments in welfare has been further examined by Galbraith (1958). This author argues that mainly external effects sent by companies through creative advertising and salesmanship, and not the individuals among themselves, cause significant manipulations from the supply side by trying to stimulate the demand for certain brands or products. This effect that consumption desires are created and satisfied in the same process has been termed dependence effect by Galbraith (1958).

The same author further argues that the technical progress with a continuous strive for new innovations generates new wants and needs. This in turn may lead to the fact that the reference point in the previously described utility function is continuously moving upwards, which results in the necessity to spend more and more in order to reach the same satisfaction level. In this context, Galbraith (1958) argues that consumption alone will not necessarily increase one’s welfare because the processes through which individuals try to satisfy their desires always create new desires. Easterlin (1996) argues that the level of satisfaction an individual generates through consumption is always relative to one’s own expectations. Therefore, each consumer has his or her own utility function with a different reference point for each individual due to different expectations. However, the tendency of the expectations to rise can be described as a general phenomenon. What is different is the degree to which expectations rise for different individuals due to different preferences and the strategies they use to attain status. In terms of individualism, the satisfaction level will not increase with the rise of consumption levels because of a simultaneous rise in the expectations.

This indicates that in the course of the last decades it has become more and more difficult to satisfy one’s own desires through the consumption of tangible products. Ever increasing expenditure cascades, the ability of more and more individuals to afford specific status products, but also the emergence of many imitations have made it more and more difficult for individuals to distinguish themselves from others and to gain a satisfaction level above the reference point. Individuals might take this development as starting point for the change of their strategies to attain status, from strategies which focus rather on the accumulation of tangible products to different strategies which may be focussed on other ways than simply the accumulation of tangible products in order to attain status. Additionally, the concurrent use of several strategies at the same time or in a specific order might serve as an opportunity for people to reach satisfaction levels above the reference point, which in turn may help them attain the desired status advantage.

2.2.9 Interim Conclusion

The intention behind this first part on the current state of the literature on status was to give the reader an overview of the main concepts proposed so far within and throughout different scientific disciplines. The attempt by Stracca and Al-Nowaihi (2005) to explain an individual’s relative social status based on economic and societal factors indicated that such an enterprise becomes somewhat problematic as soon as the researcher wants to describe the concept from an interdisciplinary point of view by trying to explain status with the help of economic, psychological and sociological components. In the next step, we will seek to change the perspective from rather a global, integrating view on status to a more specific one by presenting the main ideas first from an economic perspective and then from a societal viewpoint, which will be further narrowed down to a sociological, the psychological, the political and the cultural perspective.

2.3 Economic Perspective

Although the research on individual behaviour has been changing and developing continuously, the discipline of economics has been rather slow to pick up the importance of individual behaviour in general and status in particular. The economic perspective differs from other disciplines in so far as it gives images of people who are completely rational, which has casted doubt on the part of some researchers and caused recent changes in the consideration of status in economics literature. In fact, from the economic point of view, the long-time assumed image of the consumer as a “homo oeconomicus”, whose decisions are mainly based on a rational cost-benefit equation, is becoming more and more out of fashion. A growing branch of rather society-oriented literature has shown that this image is a simplification of the real behaviour of consumers, who actually do not entirely act in a rational way. Economic models more and more try to incorporate these additional traits of consumers by adapting certain formulas. Since the growth in the variety of consumers’ behavioural patterns makes it necessary for reliable economic formula to incorporate more and more aspects in the formula, it is obvious that the economic models will soon reach their limits. The following literature review focuses on the different views on status and the historical approaches of different scholars to define formulas which reflect the concept of status as good as possible.

2.3.1 The Assumption of the Rational Individual

Schor (1998) casts down the neoclassical theory of utility maximization since this theory assumes that each individual makes decisions rationally, is always well-informed and has only consistent and independent preferences without any influence by external factors. Generally, and with the information provided in the last section in mind, there is evidence that the framework of the rational individual widely deviates from real life. With regard to the previous section, this would mean that each individual makes his/her decisions totally independently from others. To be more specific, a rational individual would not compete in status races against others resulting thus in overconsumption, but would just consume as much as he or she may consider reasonable. However, based on the previous section it can be argued that the image of a rational individual is by far a too primitive assumption which cannot be applied to today’s reality. In the following section we will show the efforts undertaken within the economic discipline in order to present an image of an individual whose behaviour is not necessarily rational. The subsequent section, then, will show that once again the relative position rather than the absolute position is what matters for individuals. Altogether, the economy sector thus has carried out several adjustments to the long-time assumed formulas by incorporating elements which included the importance of the relative advantage for individuals.

2.3.2 From the Absolute to the Relative Income Hypothesis

Over time, many researchers have started to question the assumption that the aggregate demand curve of individuals could be constructed simply by adding up the different demand curves. Many researchers did not see the point to regard millions of people as a homogeneous mass without considering the various social processes that describe the relationships between the constituting individuals. This indicates that the discipline of economics started believing in some social theories, especially in those from sociology and psychology (see sections 2.4.1 and 2.4.2). Many authors concluded now that the research on individual behaviour and the society-oriented outcomes, some of which might be considered nowadays as integral components of the social system, should be included into the strict view of a rational individual within economics literature.

Scritovsky (1976), in turn, considers psychology to be a more appropriate discipline to analyse human behaviour, in contrast to the assumptions made in economics. Gasana (2009, p.54) argued in this respect that “Psychologists acknowledge motivational factors such as status, philanthropy, and altruism, whereas economists tend to collapse all individual choices under the broad term of ‘utility maximization’”. The first economist who successfully challenged the old-fashioned economics theory was James Duesenberry (1949), whose work is mainly based on the findings of Veblen (1899). Duesenberry directly questions the aggregated demand theory and its assumptions that a person’s behaviour should be independent of other people. With the emphasis on the social dimensions of consumption, Duesenberry recognizes the social component in individual behaviour and extended the dichotomy of absolute versus relative income claiming that the consumption behaviour is rather influenced by one’s relative social standing within society. As part of his hypothesis on the two types of income, Duesenberry calls in his Relative Income Hypothesis (RIH), which is also derived from the previously described idea of “keeping up with the Joneses”. Failing to “keep up with the Joneses” can be broadly perceived as showing various kinds of inferiority, which eventually may result in dissatisfaction, both for people with a low and for those with a high status, since in the worst case the inability to “keep up with the Joneses” may lead to a total loss of all attained status.

Duesenberrys’ RIH also emphasizes the fact that status can be seen as a function of both the kind of goods affordable as well as their value in comparison to others. More specifically, Duesenberry (1949) explicitly acknowledges the link between context and evaluation. So, he points out in his hypothesis that individuals with the same preferences and income consume different quantities of visible goods depending on their social group and the mean income within this group. This indicates that the individual cannot at all be considered as rational but rather as a being which adapts its behaviour (i.e. the amount of money spent) to the one of the members of its reference group in order to reach a relatively successful position among them. Hence, individuals are exposed to “demonstration effects” which is why they try to adopt and replicate the existing consumption patterns of those in their reference group as well as possible.

The RIH in real life can be seen, for example, in the fact that wealthy people save a significantly higher share of their permanent incomes than poorer people. This characteristic is inconsistent with traditional frameworks from economics since these frameworks do not focus on the importance of relative consumption (Duesenberry 1949; Dynan et al. 1996).[3] According to the RIH, poorer people are obliged to spend proportionately more in order to keep up with the wealthier people. This finding is in contradiction to what we mentioned in the previous section when we argued that expenditure cascades evolve in the form of status races (i.e. overconsumption), throughout all social levels, and independently of what products the people within the group already own. This will be taken for granted for our further analysis. According to Duesenberrys’ findings, it might be true that poorer people spend more in relative terms than wealthy people in order to have a chance to climb up the social ladder. Consequently, it may be assumed that poorer people would rather take loans in order to have chances to compete against wealthier people, whose social position they constantly try to reach.

The RIH is further able to explain why the national saving rates remain constant in spite of steadily increasing wages. This is mainly owed to the fact that the relative income position remains the same for most individuals. Palley (2005) even argues that consumption becomes habitual and does not fall in times of income reductions (e.g. recessions) due to the social aspects of the process of consumption. Adapted to the discipline of economics, this means that consumption is much more stable (i.e. less volatile) than income in short periods. A main reason for this phenomenon can be seen in the expenditure cascades discussed in section 2.2.4. People do not want to resist consumption because this would lower their relative position within their social group. An important factor in the decision of consumers to take loans during economic recessions is the fact that they do not want to leave the expenditure cascades and put into risk their relative (status) position within their reference group(s). They consider the possibility to draw on a credit as the lesser evil in this dilemma. This attitude towards loans is especially widespread in the United States of America, where the excessive consumption was a main cause for the financial crisis in 2008, because individuals more and more began to consume on loan in order not to lose touch with the existing expenditure cascade.

Many researchers link the desire for social status to the various hierarchical differences emerged in many fields (e.g. income level, occupation type, etc.) and described it as ”social class” (Coleman 1983; Gronhaug and Trapp 1989). The big differences in terms of income, but also regarding positions within companies, lead to the fact that the notion of relativity becomes increasingly important. This in turn may cause people more and more to search their friends, colleagues and social groups according to their income and their relative position within society in order to have a relatively high, if not the highest, standing in accordance with what the respective groups consider to be status-worthy. To be more specific, it is less likely that a poor unemployed person has friends who occupy managerial positions since the relative position within this group, then, would be very weak. Poorer people rather tend to compensate their weak social position by searching their friends (i.e. their reference group) among people who are on the same or even at a lower social level, since this would ensure them a relatively strong position within that group.

2.3.3 Displacement of the Relative Income Hypothesis

As previously mentioned, Duesenberry (1949) challenges Keynes’ view by incorporating psychological factors like habits as well as social interdependencies which form a central aspect within the RIH. Although there has been a wide acceptance among economists for the RIH, today’s accepted mainstream frameworks still assume that individuals derive their utility entirely from their own consumption U(C), rather than to assume a more integrating framework considering both one’s own and the relative consumption, U(C, C/ ). The Permanent Income Hypothesis (PIH) by Friedman (1957) as well as the life-cycle theory by Modigliani and Brumberg completely displace Duesenberry’s RIH in an unjustified manner. The dominance of these other theories was strong enough to reduce Duesenberry’s theory down to not more than just a footnote in many works.

Friedman’s PIH is based on the observation that households spend a certain part of their permanent income. Therefore, the relative propensity to consume remains constant (Palley 2005). Contrary to Duesenberry, Friedman argues that individuals save independently of their income (Frank 2005). Now, Modigliani and Brumberg’s life-cycle theory says that individuals use a lifetime pattern of consumption through which they are able to maximize their lifetime budget. Modigliani and Brumberg also incorporate credit markets for borrowing and lending as well as interest rates into their life-cycle theory, whose name derives from the fact that its authors considered consumption patterns to depend on the age of a person and to change constantly throughout the whole life. For example, they consider that younger people rather tend to accumulate savings while older people prefer to spend their money in the course of their retirement. Both Friedman’s theory and the one by Modigliani and Brumberg, however, do not consider the importance for any individual of the relative recognition factor. According to both theories, there is no difference between, on the one hand, someone who is wealthy and has a high standing in terms of income within his or her reference group, and, on the other hand, an unemployed person with a very low income and a reference group consisting of wealthy people. Hence, individuals do not consume neither independently of others or in order to keep up with others, but rather for their own sake.

There is broad consent in economics literature on the fact that too many economists misleadingly overlook the RIH of Duesenberry, which is considered a fault by others who believe this theory to be a much more realistic thanks to its incorporation of the relative component through which certain patterns of individual behaviour can be explained.[4] According to Frank (2005), for instance, a reason why Duesenberry’s RIH has not found a wide acceptance might be due to the fact that it is too closely related to psychology and sociology. Palley (2005) also mentions political reasons as responsible for the wide rejection of the RIH. According to this author, Duesenberry’s theory is too discriminatory to neo-classical welfare economies mainly due to its assumptions based on an egalitarian approach towards consumption, which was regarded as somewhat unfavourably especially during the Cold War.

Even today, it is still widely assumed that an individual’s utility function depends solely on the absolute consumption level U(C). In an interesting article in the New York Times, Frank (2005) argued that

“Despite Mr. Duesenberry’s apparent success, many economists felt uncomfortable with his relative-income hypothesis, which to them seemed more like sociology or psychology than economics […]. In light of abundant evidence that context matters, it seems fair to say that Mr. Duesenberry’s theory rests on a more realistic framework of human nature then Mr. Friedman’s. It has also been more successful in tracking actual spending. Any yet, as noted, it is no longer even mentioned in leading textbooks.” Frank (2005)

However, apart from the simple rejection of the RIH by some researchers, others tried to find weaknesses in Duesenberry’s theory by testing it empirically. For example, McBride (2001) finds a negative correlation between an individual’s social well-being and the average income in the peer group, which means that a person’s satisfaction decreases with an increase of the overall income within his or her reference group. This, however, stands in contradiction to one of Duesenberry’s (1949) assumptions according to which individuals seek to compare themselves to others standing above them, attempting, once again, “to keep up with the Joneses”. The findings of McBride (2001) do not necessarily suggest that Duesenberry’s theory should be totally discarded. McBride only finds that the permanent attempts to keep up with the Joneses and to climb up the social ladder does not necessarily originate a higher degree of happiness, because someone who steadily wants to keep up with others and to attain status needs to change his or her reference group from time to time in order to find new individuals which are in a better position and who may serve thus as the new reference point. By changing the reference group (i.e. the reference point) an individual has to renew his or her efforts of keeping up with the Joneses (i.e. to gain recognition and status) within that new group. There is no doubt that this process must turn out very long and challenging since it is a never-ending one. The fact that many other individuals might do the same (i.e. trying to keep up with the Joneses) will even complicate the search for status, assuming that individuals continuously change their reference group as soon as they are on the top (i.e. gain the most status) within a certain group. Therefore, it is obvious and logical that this challenging process does not necessarily create a higher degree of happiness because the individual always exposes himself or herself to new challenges. Based on the mentioned assumption that individuals determine their own aspirations (i.e. their reference point) depending on the individuals surrounding them, Diener et al. (1995) conclude consequently that individuals with a rather poor reference group are happier than individuals with a wealthier reference group. Parducci (1984), accordingly, points out that a negatively inversed income distribution will produce greater happiness than when positively inversed. Smith et al. (1989) verify Parducci’s findings and adds that only few individuals score very high in case of positively inversed income distributions. The same author then concludes that the overall satisfaction is inferior because of a poor performance on behalf of most individuals in comparison to the reference group. Diener et al. (1995) mention that while in the relativistic framework everyone compares him or herself with others of the same income level based on their preferences (i.e. based on their strategies to attain status), people set their standards and expectations according to their respective income level, so that people over time assimilate to their income level. Therefore, it can be concluded that for individuals who adapt to people regarded as pertaining to their own social class, the notion of “keeping up with Joneses” is of minor importance, and other, probably society-oriented, criteria gain instead major relevance in the improvement of one’s social position.

Hopkins and Kornienko (2004) emphasize the strategic importance of the relative position and found the choice of the consumption levels and at the same time the choice of the reference group to be highly strategic, because each individual must only evaluate his or her own financial opportunities to consume, but must also anticipate the consumption decisions of others in making the optimal decision for the highest possible status when choosing the best reference group in terms of a strong position for oneself. There is no doubt that Hopkins and Kornienko ignore several factors in their study (e.g. the individual’s wish to keep up with the Joneses, the subjective criteria for determining if and when something can be considered status-worthy, etc.). Therefore, McBride (2001) is right with his observation that the degree of happiness decreases with a higher average income in the peer group. However, McBride (2001) overlooks the possibility that individuals might also purposely reject a certain degree of happiness in order to keep up with the Joneses which is supposed to help them attain status.

However, particularly in the course of the 20th century and the increasing diversification of societies, many different individual patterns emerged causing people to behave in very different ways. Due to the increasing differences in terms of what individuals estimate, the number of ways how individuals try to gain status has increased significantly. The image of the individual used by Duesenberry to develop his theory does still exist, but only among several other social groups with different preferences. While some people can attain status even through the strict non-consumption, others enter into expenditure cascades and strictly follow their aim of keeping up with the Joneses as mentioned by Duesenberry.

The aspect of the inability to increase overall happiness despite significant income increases has been further developed by Cooper and Garcia-Penalosa (2001). They argue that most of the innovations are increasingly made in categories and with products that can be considered as status goods. Although these may lead to an increase in the measured output they cause stagnation in happiness since status goods are incapable of incrementing happiness. Frank (1999) and Weinstein (1980) argue that many consumers of status goods are still guided by overconfidence and the fact that people with status goods are considered winners by other people. However, even these goods may increase one’s happiness and status for only a very short period, if at all, because others will follow and try to imitate along the lines of keeping up with the Joneses. This fact that status goods do not generate sustainable happiness is still ignored by many people in reality. Those who do not ignore it, on the other hand, try to gain happiness from other things than simply by buying tangible goods. The next section, now, will present a number of other theoretical concepts discussed in sociology literature.

After all, McBride’s (2001) argument sounds relatively weak because in his conclusion he assumes that the happiness of a human being is the one and only factor to determine people’s behaviour. In fact, the further investigation in the course of this ERP will reveal that several psychographic and demographic factors combine in an individual’s actual strategy or strategies to attain status will be defined.

2.3.4 Acknowledgement of the Relative Position

By the use of common sense one might predict that wealth and social well-being are positively correlated for with more resources in hand individuals should be able to achieve their goals more easily, but also because people with higher incomes receive recognition (i.e. status) from others. In the case of the goals proposed in Maslow’s (1954) hierarchy of needs (see section 2.3.6), high income has positive side effects like the satisfaction of basic physical needs as well as scrutiny.

A multitude of authors mention that a rise in productivity does not automatically lead to an increase in happiness (Heath 2002). The first author to empirically prove that happiness is more sensitive to relative rather than to absolute income, is Easterlin (1974), a rather society-oriented economist who has always acknowledged the importance of the relative position. He finds out that once individuals have satisfied their basic needs, wealth and happiness are no longer associated to the subjective state of well-being, but that they then rather compare their degree of well-being to that of other members of their respective reference group. In order to prove and further examine his findings, Easterlin (1974) compares various countries with each other and found several among them with a very strong income growth over the last fifty years but without any significant growth of the level of happiness. Figure 2 below shows a simple graph with the development of the level of happiness and the income level in the US between 1973 and 2004. It is obvious that while the income level has continuously improved and has indeed almost doubled, the level of happiness has remained constant.[5] This phenomenon is known in the literature as the “Easterlin Paradox” (Easterlin 1974).

Abbildung in dieser Leseprobe nicht enthalten Figure 2: Happiness and Real Income per Capita in the US, 1973-2004 (Easterlin 1974).

Easterlin (1974, 1995) argues that differences between nations in terms of income do not create differences in well-being since people only compare their income to that of their peer group. However, in the meantime, once Easterlin has conducted his studies, the process of globalization has further developed. Today it is normal that one’s reference group consists of people from different countries with different preferences and all levels of happiness. An intercultural study by Easterlin about the different intercultural comparison of levels of happiness would have been interesting, because it could have given further implications concerning the different perceptions of status in different cultures. As we will specify later on in this work, the lack of an intercultural comparison is also one of the major limitations in our study for this ERP. There is no doubt that societies of different countries differ significantly, as suggest, for instance, the major studies by Hofstede (1984, 2001) about cultural dimensions.

Notwithstanding the decades of steady income growth, most individuals still feel the severe budget constraints. This is so mainly because of the circumstance that with the rise in incomes, the consumption standards also have increased at approximately the same pace.

2.3.5 The Role of Taxes

Layard (1980), Oswald (1983) and Ng (1987) argue that the distinction between an absolute and a relative consideration of utility has key implications both for the tax and the expenditure policy. If the utility of an individual depends to at least a minor degree on the relative consumption, an increase of the consumption of another person causes a negative externality due to a lower relative consumption. As previously mentioned (see section 2.2.7), positional consumption concerns of individuals alter the equilibrium and may result in overconsumption (Ljungqvist and Uhlig 2000). Taxes (e.g. consumption tax) which lower consumption, however, are not as contrary to it as previously assumed. This is mainly because, according to Luttmer (2005), these taxes can minimize or internalize the negative externality on others. Ljungqvist and Uhlig (2000) agree on this view and mention that (positional) concerns in consumption can result in a negative externality, which in turn may finally lead to higher equilibrium consumption than is socially efficient and desired. A very confident indicator for non-equilibrium consumption is the measure of the marginal utility, which should be higher than usually if concerns about the relative consumption exist. The aim to correct these inefficient and undesired effects creates a potential for governmental interventions. In this context, Ljungqvist and Uhlig (2000) and Layard (2003) argue that governments are able to restore the original consumption level by means of a tax policy in the form of, for example, the implementation of an income tax to diminish and abandon the existing effects of positional concerns.

The redistribution of tax incomes is a commonly used method to distribute money from wealthier people to poorer people within the same society. Frank (1985a) indicates with his model that a tax on (positional) consumption will correct the distortion created by the negative externalities. With regard to the poorer people, an increase of the disposable income results in a decrease of the experienced dissonance (see section Furthermore, with a higher income these individuals will rather abandon mainstream norms for appropriate underclass behaviour. Finally, the redistributed tax money keeps the poorer people away from abandoning any status norms and thereby raises their efforts to prove their potential ability to afford certain status goods.

It can be concluded, thus, that the implication of taxes leads to a redistribution of money from wealthier to poorer people. This results in a decrease of the social gap and the ability of the poorer people to participate in consumption processes. Although they will of course not be able to consume the same products as the wealthy people, they instead are able now to make relatively expensive sporadic acquisitions which allow them to significantly climb up the social ladder and to attain status at least in certain areas. For example, one can commonly observe that a considerably high proportion of BMW’s 3-series drivers in Germany is relatively poor in terms of their average income. Since this series by BMW is commonly ascribed a highly symbolic value, people are willing to invest even a very high proportion of their money in such prestigious objects, although many of them are even dependent on social aid by the government. They live in quite small apartments and just have sufficient money to satisfy their most basic needs (e.g. nutrition). However, due to the governmental support they have sufficient money to acquire even status products (e.g. cars). Most of these people choose cars as such because these are widely considered as status symbols, moreover they are still relatively affordable (in contrast to expensive houses, big boats, etc.), and they are easy to differentiate from others (e.g. through tuning). This is one very prominent (German) example for the impacts on people’s ability to consume status products through the implementation of a redistribution tax.

2.3.6 Income and Status Seeking

According to Maslow’s hierarchy-of-needs theory (1954), poor individuals cannot have any economic aspirations for status as long as basic needs, such as shelter, food and clothing, are not met (Maslow 1970 [1954]). Therefore, in terms of the economic perspective the consumption patterns among the poorest people need to be explained in a different way. Van Kampen (2003) argues that the so-called “cultural imperialism” thesis may provide such an explanation. According to this thesis, different advertising campaigns and other types of media aim at luring especially the poorest people into consumption patterns of status-intense products. It should be questioned whether advertising campaigns and the media are (already) tools with sufficient power to create false needs able to manipulate individuals’ habits. An alternative approach would be to assume, against the view of Maslow, that even the poor people have a genuine interest in attaining and possessing tangible status products. In such a perspective, advertising campaigns and the media would just serve to arouse an already existing need rather than to create a new one through “cultural imperialism”. This would even be in line with a major conclusion by Maslow according to which higher-order needs may come into play even before lower-order needs are completely satisfied (Maslow, 1970 [1954]).

The practical example from the previous section supports the general observation that especially in more developed countries status seeking is not anymore an exclusive aim of wealthy people who can afford products with a high symbolic value. In today’s societies with unrestricted social value it is not only possible but also much easier to ascend socially through the consumption in specific areas. Although it is still a challenge and a long-term process to climb up bearing in mind most people’s average income, but it is relatively easy to compete for status with some people on specific goods (e.g. cars). This indicates that income is not anymore the decisive variable for determining whether someone is able to attain status or not. Moreover, nowadays income is just one among several psychographic and demographic factors which determine someone’s ability to attain status. Additionally, a study by Jin et al. (2010) shows that not only an individual’s income matters for his or her status seeking behaviour but also the disparity between incomes, compared to others. They found that with an increase of this disparity people tend to save more since this is always associated with a weakening of one’s personal position in the race for social status. A good amount of money saved on the bank account, instead of ascending socially in very specific areas through the purchase of certain products, is what is of most interest for these people under such conditions. The findings indicate further that income does not necessarily foster the status seeking of people, nor is it the case in terms of their consumption habits. Also, an opposite result may be possible among very rich people who then stop spending money because achieving a high status is relatively easy for them, while poorer people stop any form of consumption since they simply give up and try to attain status through other ways and not necessarily by keeping up with others through the consumption of tangible products.

2.3.7 Interim Conclusion

The discussion in economics literature on status has revealed primarily two important aspects. First, economists are broadly aware of the fact that their formulas are mainly a simplification of the real consumer behaviour which cannot be simply described as rational. The incorporation of relative factors as proposed by Duesenberry in his RIH has led to intense discussions among economic scholars about its accuracy to measure consumer behaviour. The emergence of many other theories with the general aim to get away from the rational image of the “homo oeconomicus” as assumed in the Absolute Income Hypothesis (AIH) by Keynes, in turn, has led to contradictory outcomes and a dilemma within economics. The proposed models have all been repeatedly challenged by other scholars due to their imperfection and neglect of specific irrational traits which others did incorporate in their formulas. This discloses one of the main weaknesses or, to be more precise, shortcomings of the economic formulas: they cannot be all-encompassing by incorporating and weighting each single trait in individuals that would normally be worthwhile and necessary incorporating into the formula. This results in the main dilemma which consists in the limitation of economic models, on the one hand, and the doubtless need to include the findings on the irrationality of consumers, on the other. The inability of economics to deal properly with the masses of qualitative information results in the fact that the AIH, which assumes a complete rational individual, is still the approach to be taught to students at universities as the most promising model of all. However, findings like the Easterlin Paradox indicate that it is not this easy to say that the utility and the social well-being of an individual increases with the increase of his or her income. The Easterlin Paradox is one of several other findings which all reveal the necessity to also analyse the social component of consumer behaviour in general as well as the status seeking behaviour from a social perspective in particular. Now, this will be the aim of the next section.

2.4 Social Perspective

As mentioned in the previous section, the still existing and dominating utilitarian view completely ignores the law of supply and demand (Marshall 1890). Leibenstein (1950) argues that individuals derive their satisfaction not only from the monetary value of the good itself (i.e. the functional demand), but also and mainly from many other aspects which are related to the consumption of that good (i.e. non-functional demand). There has been well-founded doubt among economists about the assumption that the spending decisions of individuals are completely taken without any consideration of possible reactions on behalf of other actors in the market. Contrary to economics, research in social sciences (and particularly in psychology) pays attention to the fact that individuals do not only maximize their utility (i.e. happiness and status) through the maximization of satisfaction, but that they also alter their beliefs depending on the situation in which they are and the group they are dealing with in order to achieve their goals.

The above-mentioned observation by Easterlin (1974) that happiness is purely a relative concept and that one’s happiness does not even increase with a mere increase in income has been doubted by various society-oriented researchers stating that the degree of happiness mainly depends on the reference group an individual belongs to (Van de Stadt et al. 1985; Clark and Oswald 1986; Ferrer-i-Carbonell 2005). It can be seen, thus, that this approach is in contradiction with the previously mentioned economic concept of keeping up with the Joneses, according to which an individual changes his/her reference group in order to ascend in the social hierarchy. Luttmer (2005) reveals in one of his several studies that an increase in earnings in a neighbourhood may have different impacts on the other members of that neighbourhood who have not experienced such an increase in income. The degree of the experienced negative effect depends on how much an individual socializes with his/her neighbourhood. According to Luttmer (2005), the negative effect is mostly caused by socially motivated externalities since individuals have different utility functions which depend to a different degree on both relative as well as absolute consumption. This finding of different utility functions in different individuals seems to be very plausible because it indicates that individuals maximize their relative status advantage in different ways, some of which are more socially based whereas others are more economically based. This is one of several reasons for the appropriateness especially of socially oriented perspectives within the literature on status.

2.4.1 Sociological Perspective

In sociological literature, we repeatedly read that people’s status concerns go back to a time of a huge scarcity of many resources. Individuals with access to these rare resources were considered status-worthy because it increased the probability of a successful reproduction. Therefore, people tended to choose partners with sufficient resources in order to be able to pass their genes successfully on to the next generation. Still today, and not only in the animal world but to a similar degree also among humans, strength and beauty are still associated with status since these qualities suggest a stronger fertility.

The previous example of the importance in terms of reproduction and fertility shows that the sociological literature on status focuses primarily on the interpersonal behaviour between groups of people; consequently, the related theory is called Group Theory in the literature. Instead of considering status as a process of creating situational expectations, the sociological literature understands status as a condition which helps individuals understand themselves and their needs better. Sociology, thus, tries to explain why individuals often act differently depending on their respective reference groups, especially when these groups differ a lot from each other concerning their particular definition of status.

Dubois and Duquesne (1993) argue that differences in terms of social values are an influential factor in individual behaviour. If the consumption of a certain product is considered as adequate or even a prerequisite in a specific group, it depends on the social values of an individual if he or she ends up assimilating to this behaviour by consuming the same product in order to befit the social standards. There is no doubt that the consumption of specific, highly estimated products within a group is mandatory for each member of the group. However, the consumption of suchlike products will significantly help the individual gain a significant advantage over others who reject the consumption. There is empirical evidence that individuals mostly belong to many and in some cases even very different groups in terms of education or consumption patterns. Research has shown that people assimilate their preferences to the different reference groups by trying to adapt to their patterns in order to maximize their own social well-being and relative status advantage. According to Bourdieu (1984), an individual’s “habitus” embeds certain values which relate to the social class and personal education, as well as his/her upbringing may influence their social needs and therefore what an individual considers status-worthy.

Other sociologists also responded to the emergence of individualism (see section 2.2.3). Baudrillard (1998), for instance, considers it a driver in social differentiation and further argued that the increasingly important component of consumption is a coded language based on signs which are used by individuals as an opportunity to communicate with each other. He explains the emergence of individualism with the fact that it no longer satisfies individuals to only meet their individual needs, but that people rather use individualism in order to enter and participate in a process of differentiation with different systems of symbolic values. Putting this into practice, Baudrillard tries to explain that, for example, a unique luxury car does not anymore only serve the purpose of transportation but is consumed by individuals to signal their good taste, their ambition for becoming unique, and thereby their own personal status towards others.

2.4.2 Psychological Perspective

While the sociological literature covers the meaning of status in questions of interpersonal behaviour, the psychological literature deals with the importance of status for interpersonal behaviour. The related theory is called Social Comparison Theory and claims that individuals have a strong inner need to compare themselves to other individuals who they regard as similar.

Psychologically-focussed research on status complements the socially-oriented research by focusing on the influence of the nature of consumption. Clearly, individuals’ social well-being increments with the improvement of their personal situation compared to others. It is one of the key assumptions in psychological literature that individuals do not act in social silos but rather continuously compare to others when they consume certain goods which they deem status-worthy.

As already brought up in the previous section, individual behaviour, and thereby the strategies used by individuals to attain status, is mainly influenced by the other people’s behaviour in society in general, but also by individuals from their own reference group. The incorporation of the psychological component results in a distinction between society-oriented and personally-oriented individuals. The source of these two orientations can be found in a person’s self-concept (see section[6] Mason (1985) uses the concept of the conspicuous consumption (see section 2.2.2) and points out that not the derived utility in terms of the value of the product is of key importance, but the influences and effects on the purchasing behaviour by other people. Therefore, we can conclude that it is the symbolism rather than the simple utility of the product which can be considered as the most important criteria for the conspicuous individual. To be more specific, the evaluation of products is subjective rather than objective for many individuals. These individuals rather focus on the social, and not on economic, product attributes, preferably with a high visibility factor which can be considered as a prerequisite for all forms of status-oriented consumption. Signalling status

Consumption can be described as a communicative act which offers the possibility to display specific symbols to others (Douglas and Isherwood 1979; McCracken 1988), a process which is described as signalling in the literature. As previously mentioned, individuals can reach psychological satisfaction if they feel to be better off than others and have a discomfort, on the other hand, when realizing that others are doing better than they do. The status seeking behaviour of many individuals has been linked to the symbolic attributes of certain products. Certain individuals use and display specific products or services in order to create an image of themselves in terms of what they have, feel, or like, in order to further emphasize what they want to have (Braun and Wicklund 1989; Belk 1985; Goffman 1959). Especially luxury products are considered as status products since their consumption is highly symbolic and helps the consumer enhance his or her sense of self by creating an image which is supposed to show what they are or –in the case of relatively poor people consuming luxury products – what they would like to be (Belk 1988a; Braun and Wicklung 1989; Goffman 1951; Mason 1981). This is in line with Ireland (1994) as well as with Bagwell and Bernheim (1996) who state that individuals already gain inner satisfaction through the conspicuous consumption of symbolic products.

Veblen’s intention in his works on conspicuous consumption was not to claim that individual behaviour is driven by satisfying basic needs, but that it is rather used as an attempt by individuals to attain social esteem and cause envy to their peer group members. This envy and esteem by others puts the individual who has been able to send these signals into a better light and gives him/her a higher status within the group. These attempts and their outcomes are described as signalling effects, which have come to play a dominant role in the literature, especially since Leibenstein (1950) divides them further into “veblen”, “snob” and “bandwagon” effect. Based on Veblen’s findings, Eastman et al. (1999) link status directly to the symbolic use of products, describing status seeking as

”[…] the trait of individuals who strive to improve their social standing through the conspicuous consumption of individual products that confer and symbolize status both for the individual and significant others surrounding the individual.” Eastman et al. (1999, p. 42)

Leibenstein (1950) further examines the outcome of signalling effects by proving mathematically the key importance of these effects in the process of consumption. He finds out that the degree of utility derived from a product increases or decreases depending on its consumption by others. Leibenstein is the first to prove mathematically that individuals attain an additional benefit through the consumption of symbolic products which in turn increases the consumer’s derived utility. Therefore, the utility derived from factors which are not directly inherent in the product can be described as the signalling or external effects of a product. Due to the existence of certain symbolic power inherent to some products, the value perceived by others can differ significantly from the real value of the product. Leibenstein (1950), consequently, distinguishes between a real price and a conspicuous price in order to address this difference. While the real price is the fixed one the individual has actually paid for the product, the conspicuous price describes the price which may differ from individual to individual being the price that other people think the individual might have paid for the product. The different perceptions of the prices for certain goods have important implications for the individual’s motivation to attain status through a specific product, especially when the real and the conspicuous price differ significantly. Based on Leibenstein’s findings it can be argued that the signalling value of a symbolic product disappears when many people own the same symbolic product. This will then be more and more transformed into a massive product and will finally cease being considered as something through which people may attain status. The existence of certain unique attributes in some rare or exclusive products (e.g. luxury products) is the main reason why individuals are willing to pay enormous prices. It is not necessarily the actually paid amount of money through which the individual attains status, but rather the signals sent by the product purchased which results in many different conspicuous qualities for the individual since people have different attributes and preferences.

Belk et al. (1982a, 1982b) further examine the characteristics of symbols in products and argued that both encoding and decoding are responsible for the ability of certain symbols to communicate status. In the case of encoding, status is derived through the ownership of products (with symbols) which are unique at that level. The status derived through encoding is not necessarily sustainable because the symbols sent by some products are not clear and others can become ambivalent or diffuse over time. In the case of some specific products, this gives people the opportunity to attain a class status through the misleading use of appropriate symbols. These diffused symbols, which can occur across all levels of hierarchy, have been named “fraudulent” by Goffman (1951). With this term Goffman (1951) tries to make individuals aware of the fact that they cannot anymore be assured that all symbols carry a certain level of status, because symbols can be misused in a way to display a status which the individual does not necessarily possess. The most prominent example of the misleading use of symbols by individuals is the consumption of counterfeit products which are sufficiently similar to their original counterparts. Given a very good counterfeit product in terms of quality without any (obvious) difference to the original product, the ”fraudulent” signals sent by the counterfeit can be used to attain status in case the addressees of this counterfeit (i.e. other people) do not recognize it as an imitation. In the description of the just outlined framework for the further analysis of this ERP, “fraudulent” symbols generally as well as the consumption of counterfeit products may turn out to be very efficient strategies for individuals to increase their relative status advantage. Another example of such ”fraudulent” symbols is the continuous value shift by individuals which happens at an increasing speed due to shorter product lifecycles and an ever increasing offer of new products with new functions. Symbols which can be considered as very valuable today might lose their value over time. For example, as long as individuals do not only value the basic functions of a car, luxury cars can still be considered status-worthy because individuals are ready to pay premium prices for these cars (Porter 1966; Schaninger 1981).

The communication of status through signalling does not entirely depend on the possession of unique symbols (status encoding), but also on the way in which members of a society perceive a specific symbol and its ability to represent a certain level of status (status decoding). The greater the differences in the perception of symbols among groups of individuals, the less similar will be the status attribution derived from a symbol and the less effective (i.e. one might just address a very small group of people), in the end, will be the communication of status through specific symbols. This leads us to the conclusion that symbolization is achieved through the consumption of products if the ownership of material items is homogenous within class positions (status encoding) and if the society agrees on the deference entitlement (status decoding). It is obvious, thus, that symbolization according to these conditions can nowadays only hardly be achieved. Today, symbolization may rather be gained through the consumption of luxury goods. The increasing number of “fraudulent” symbols in the form of counterfeit products can be seen as severe risk for mainly two reasons. Firstly, with the emergence of such symbols the absolute number of consumers of luxury products further increases. At some point, a broad mass might be reached through which it is not possible anymore for individuals to attain great status advantages in this way since the product thus has lost some of its uniqueness. Secondly, ”fraudulent” symbols themselves might cause the product to lose all of its signalling effects because consumers are likely to lose their confidence in the product when many counterfeits of it are on the market.

This might be in line with the observation that the usage of symbols to convey status declined in the course of the 20th century (Dawson and Cavell 1980). Belk and Pollay (1985) mention various analyses which reveal a decrease in the use of status-oriented objects in the course of the previous years. Dawson and Cavell (1980) present two arguments in order to show that material items do not any longer effectively communicate status: rising affluence and a change in individual attitudes. They argue that due to an overall increase in incomes, goods are no longer scarce. The change in individual attitudes is expressed by a growing diversification of lifestyles away from materialism and towards, for example, simplicity and self-reliance, both of which are trends in direct contradiction to those of expressing distinction through signalling. The most opposite lifestyle through which an individual can attain status is known as voluntary simplicity (Shama 1981), which in the most extreme case may result in an absolute refusal toward consumption. The development of the framework as shown in the next section will reveal that voluntary simplicity can be considered more and more as a strategy for people to attain status. The broad mass of people who are able to attain status through the adoption of a new lifestyle should be reached since an increasing number of people dream of leaving the stressful (business) life without any work-life balance and/or dream of a life far from mainstream. Other people, consequently, may envy those who are finally able to escape the globalizing world and to start a new part of their lives by living in relative simplicity.

Berger and Ward (2010) find out in a recent study that individuals with a higher cultural capital prefer subtle signals in the form of small logos or small brands in order to differentiate themselves from the mainstream consumption pattern. These authors argue that consumers of those products use much more subtle signals in order to surpass others “in the know”. This means in turn that such subtle signals can only be appropriately identified by those who have sufficient knowledge to decode their meaning. One driver in this development is the fact that products with a subtle or silent signal or specific patterns are not necessarily cheaper but rather more expensive than those with a loud signal in the form of visible brands and logos or patterns (Berger and Ward 2010; Han et al. 2010).

So, although the usage of symbols for attaining status declines as previously explained, it has to be noted, too, that signalling through the purchase of very expensive or rare goods still can serve as a strategy for some people to gain social status. However, in combination with an ever increasing average income, higher living standards and the emergence of a big market with luxury goods, it has become more and more difficult to signal status by the help of tangible products. For example, the 3-series BMW was considered as one of the major status symbols among many people in Germany. Today, this has significantly changed because today it is considered to be rather the average well-affordable for many people. Generally speaking, the premium car segment of brands like BMW, Mercedes, Audi, Lexus and Infiniti has lost a large degree of exclusivity in the last decades because most of their products (except high end products) are now produced for the mass market. This, in combination with the emergence and continuous growth of the luxury car market with brands like Ferrari, Rolls Royce or Maybach, has decreased the relative value of and the opportunity to attain status through the consumption of cars in the premium sector. This example shows that status products still exist but at a much higher value in terms of price and to a lower degree in terms of the proportion of individuals who decide to use the strategy of signalling to attain status. Theory of Cognitive Dissonance

As the previous section has already shown, individuals choose different strategies based on their social position and their ability to attain status (Aronson 1992; Eagly and Shellay 1993). This observation and thereby the topic chosen for this ERP are based on the theory of Cognitive Dissonance CD), which can also be described as psychological discomfort. The theory of CD implies that the preferences of individuals are adaptable. While this theory is widespread in psychology, it has only marginally been explored within economics. CD can be described as a situation of conflict or anxiety which results from the inconsistency between people’s beliefs and/or preferences on the one hand and their actions on the other. Festinger (1957) develops the initial theory of CD describing the continuous hold of inconsistent beliefs or the purposely wrong performance to be in contrast to the beliefs of individuals.

Aronson (1992) finds the experienced dissonance to be particularly strong when the inconsistency of beliefs and actions among individuals affects the people’s self-image. Therefore, if social status is considered an important component of one’s self-image (which should be assumed), individuals who invest in specific resources to attain status (money, time, power, etc.) but finally fail to attain it experience such dissonance. Due to the limitations of social hierarchies, just a few individuals can eventually be deemed status-worthy.

According to Oxoby (2004), the development and continuous growth of distinct classes in terms of preferences and behaviours can be explained on the basis of CD. Individuals who fail to obtain status based on normal’ resources (e.g. money) may change their definition of and attitudes towards status and start to compete for their social position (i.e. for status) in another way. Of course, some people are more likely to abandon mainstream norms.[7] For example, since status is traditionally very often allocated based on a person’s wealth in terms of income, individuals with a relatively low income will not be considered status-worthy. These people, hence, may experience dissonance when social rewards are ascribed on the basis of income or the degree of consumption within the reference group. They may basically follow two different strategies, one of which is less likely to occur. Firstly, they could further expand their resources in status seeking as the positional treadmill suggests in order to soften their level of dissonance. This strategy is expected to be less likely to occur since the people affected would only be able to reduce their dissonance by spending more money. This in turn would result in an overconsumption and the necessity of loans in order to keep up with the Joneses. Secondly, as much of the psychological literature suggests and has previously been described herein, individuals may abandon this status norm and further engage in other forms of status seeking. People who choose this option will use other status seeking strategies than those who prefer income or consumption-based methods. Altogether, a rational individual will always opt for the least costly method of dissonance reduction. As a part of the theory of CD, the individual is free to decide how status should be gained now and in the future.

The phenomenon of CD finally results in the creation of behaviourally distinct classes and the development of different subgroups. This can be considered as one important indicator for the emergence of different strategies followed by individuals separately or at the same time and in a specific order. According to Festinger (1957), Aronson (1994) and Eagly and Chaiken (1993), the reduction of dissonance due to changes in attitudes does not come without costs. Thus, this long-term process requires the research (i.e. gathering and processing) of new information, re-evaluating past behaviour patterns and breaking long time inherited cognitive habits.

A practical example of the theory of CD is presented by Montgomery (1994) in his study on “street-corner men”. The study is based on the assumption that good spouses support their families, meaning that individuals who live in severe poverty experience dissonance due to the inconsistency between the low incomes and their wish to be perceived as good spouses. To soften the feeling of psychological stress due to the experienced dissonance, individuals may decide to abandon the norm of supporting their families. Most of Montgomery’s street-corner men experienced dissonance and decided to live on the streets abandoning the norm of emphasising the need to support the family (Oxoby 2004). These men suffered from an inconsistency between their cultural goals of mainstream society and the financial means available to achieve their goals. In order to dissociate themselves from the norms of an appropriate behaviour, they followed other goals which they thought to reach via alternative means.

Oxoby (2004) considers the part of the population which decides to change its attitudes (i.e. the status norms) towards those of the underclass. This social class very often abandons the mainstream norms and searches for social esteem in other areas considered as status-worthy. For example, they might reject completely all efforts regarding work and general behaviour. The decrease in terms of low work effort and a misleading general behaviour can be considered as synonym for increased efforts in other areas which are now subjectively regarded as status-worthy. Some ways of new things which could deliver status to underclass individuals who left the mainstream norms may be to take drugs or to commit crimes (Kelso 1994; Wilson 1987).

Finally, it has to be noted that CD cannot just occur among poor people as the example might suggest. Hence, it is not limited to people from specific income levels or certain education levels. Everybody can experience CD, and therefore everybody could come into a situation in which it becomes necessary to change habitual patterns in order to leave the condition of CD behind. The research conducted by Oxoby (2004) shows, with its somewhat paradoxical results, that everybody can experience CD to a certain degree. Oxoby finds that quite a large part of the population decides to ignore the existing status norms and starts to seek leisure-oriented status with a rising importance of social rank. Although this result is counter-intuitive at first glance, it implies on the other hand that the number of individuals who decide to abandon a specific norm increases with the degree to which society places emphasis on status norms. This observation shows clearly that the condition of CD should not, and cannot, be limited to the poorer part of the population in terms of income. This “paradox” can be considered as one of the key findings of the research on CD. Likewise, the frameworks by Montgomery (1994) and Rabin (1994) yield similar results. The role of diversification and Economic Growth

The greater the social diversification in terms of race, experience, religion, etc., the more obvious are the visible differences among members of each class. Therefore, the variance of the experienced levels of happiness of members in the different classes can be expected to grow with a higher diversification of members in the different classes. A growing diversification in terms of racial and cultural features facilitates the development of an “us versus them” approach, building on the fact that some people within a group might reject what mainstream society considers acceptable. This might support the emergence of novel sub-groups or reference groups with new values, expectations towards life and different views on what has to be considered status-worthy. The growing diversification observable at least within all mainstream societies mainly in terms of income and education is one the main factors which cause the emergence of new lifestyles since people more and more try to gain happiness and status by means of other things than income or education. Individuals continuously strive for more happiness (i.e. their social well-being) and increasingly invent new lifestyles or trends for more happiness and a better social position. This new tendency is another indicator for the fact that individuals increasingly deploy different strategies to attain a higher relative position and a higher social well-being.

Oxoby (2004) concludes that in areas with greater racial and cultural diversity, the cognitive costs and the size of the underclass will be bigger, too. Diener et al. (1995) further argues that the equality among individuals (e.g. equality in terms of income or equal access to education for males and females) further determines the degree of status an individual can achieve within a group. Thus, the higher the equality among the members of a reference group, the higher will be the percentage of people able to achieve their personal goals. Therefore, in rather equal societies in terms of income distribution and education, social groups, trends and lifestyles will be more homogenous due to the fact that more people can attain status since they are relatively better off on average than in more diversified groups. In other words, the proportion of those below the reference point (see section 2.2.7) will be smaller in more equal groups or at least the distance to the reference point will be smaller, which in turn allows people to reach more easily the reference point without changing the social group or entering new lifestyles in order to attain status or gain social well-being. In contrast to that, a higher degree of inequality leads to issues of equity and social justice, and therefore individuals who experience these issues may decide to leave these groups and try to gain status in another way that might put them in a positive light having thus better chances to attain status.

Finally, Oxoby (2004) mentions that rapid economic growth may lead to a decrease in cognitive costs associated with a change of attitudes. These rapid changes often entail further changes in existing norms. This in turn creates a high degree of uncertainty regarding what norms will be “key success factors” in the future search for status. The necessity to adapt one’s social norms or to completely change them in order to reach a better relative position concerning the experienced social well-being in times of a rapid economic growth reduce cognitive costs due to a relatively high degree of uncertainty. Adapting this observation to the vast technological and social changes throughout the last decades, cognitive costs have been relatively low, creating thus the opportunity for people to adapt, change or completely abandon their existing social norms and enter other classes with different perceptions of what can be deemed status-worthy. Therefore, it can be concluded that both a further diversification of social groups and economic growth in societies lower the cognitive costs due to a rising uncertainty. This makes it easier and less costly for individuals to change their existing social norms and enter new ways of attaining a higher social well-being and thereby to reach a higher status. The diversification of ways chosen by individuals is reflected in the emergence of new trends and lifestyles in today’s societies, most of which are very different both regarding their ways to reflect the increasing diversification of individuals as well as their different norms their thus diversified members may consider status-worthy.

2.4.3 Political Perspective

Compared to economics, sociology and psychology, the concept of status is still not widely discussed in the literature on politics (and culture – see section 2.4.4).[8] The political system of a nation is mostly responsible for the degree of liberty which it gives to its citizens. In some nations with just a few civil and political rights it is very difficult and sometimes even impossible for a “normal” citizen to gain power. This results in the fact that these people are dependent on and subject to the desires of the governmental authorities. This gives citizens a limited liberty to really do what they want and to change their norms in life in a way that they can reach a greater social well-being. In such countries, generally, and in Third World countries, specifically, there predominates a high level of uncertainty about the future. This prevents people from investing money due to an unforeseeable future. As previously described (see section, a change in status norms is always linked to different kinds of costs (e.g. monetary and cognitive costs). Although the cognitive costs decrease with a rise in uncertainty, the monetary costs remain still the same. This and strict rules, particularly in socialistic and communistic countries, prevent people from changing and adapting their status norms to a definition through which they can attain status advantages.

In other, mainly democratic, countries, individuals are largely protected by laws and it is relatively easy for them to gain political influence and thereby power. The higher degree of self-efficacy in democratic nations increases the power of individuals to change status norms in a way that they can maximize them. The government therein still functions as the guardian of the law and takes care that individuals experience more security, which represents the second level in Maslow’s hierarchy (Diener et al. 1995). This allows individuals to more easily ascend social hierarchy and thereby to also attain satisfaction, social well-being and, by that, also relative status advantages.

These observations show that governments who concede more rights to their citizens are to be preferred since they are rather able to reach the goal that as many as possible citizens be capable of reaching their needs by adopting a lifestyle by the help of which they can attain the highest possible degree of social well-being, in general, but also a relative status advantage, in particular. Through the rights given to citizens, these are much sooner able to reach their needs because with this liberty they can use different kinds of behaviours which might help them to more easily change their social norms in order to reach a higher degree of social well-being. Therefore, the acknowledgement of sufficient (civil and political) rights is of highest importance for individuals to achieve their natural goal of relatively high status and social well-being in a specific area.

2.4.4 Cultural Perspective

Similarly to the political branch of research on status, the cultural perspective has not yet been exhaustively examined. The most famous study about the cultural diversification of individuals was conducted by Hofstede in 1984 (and modified in 2001). Hofstede defined six different dimensions which are essential for the analysis of cultural differences among nations (or organizations).[9] It is important, here, to consider that the cultural differences can only be described on a macro (nations) or meso (organization) but not on a micro (individual) level proposing specific cultural characteristics of individuals. Since in this ERP we will focus on the micro level (see section 4.4) Hofstede’s study and its results will not be further considered in the remainder of the present paper.

One different variable, also discussed by Hofstede, influencing an individual’s social well-being is the distinction between individualism and collectivism (Triandis 1989), or else independence-interdependence as described by Hofstede (1980). While in rather individualistic societies individuals care more about their private goals and desires, in collectivistic societies, by contrast, individuals rather focus on a group’s goals. In individualistic societies, in turn, each individual rather emphasizes his or her individually set goals and tries to maximize and improve the own status and social well-being comparing him or herself constantly to others. Therefore, people in more individualistic countries rather feel more responsible for their own failures but in turn also for their own successes. Solely this distinction between rather more collectively and more individualistically-oriented countries clearly shows that the psychographic and demographic factors in the hunt for status as well as the therein used strategies should significantly differ depending on the cultural orientation measured on a continuum from more individualistic to more collectivistic societies.

Diener et al. (1995) examine the homogeneity between countries. In doing so, they found that the increasing number of conflicts in nations is mainly due to a growing diversification of cultural groups within these nations (i.e. a higher individualistic tendency). In contrast, countries which are more homogenous in terms of ethnicity, language and religion will rather tend to more collectivistic patterns and therefore show a higher political unity with fewer conflicts. Based on this observation, Diener et al. (1995) conclude that more harmonious interpersonal relationships can be observed rather in countries with uniform social expectations. In such collectivist countries individuals rather value their status on the basis of the reaction of others. Individuals are less status-oriented for their own sake and do not necessarily consider things status-worthy based on their own opinion (i.e. their personal norms) but rather on the norms of their social group. Therefore, these individuals tend to deem status-worthy what others deem as such. In terms of the later defined strategies which individuals deploy to attain status, it can be assumed that rather individualistically oriented people, for example, try to attain status through “fraudulent” symbols, whereas rather collectivistically oriented individuals attain status, for instance, through the sharing of goods with others instead of owning them for themselves. While in the case of the first strategy (“fraudulent” symbols) the main driver is the individual’s wish to signal something which he/she actually does not have, the second strategy (sharing instead of owning) rather may lead to a relative status advantage or increase for all those who commit themselves to live that way which in turn is only possible as long as the respective social group considers exactly this as status-worthy.

Diener et al. (1995) mention further that individualism is strongly related to a higher degree of social well-being because individualistic societies allow their members more freedom to choose their own way of life. Additionally, people in individualistic cultures experience less pressure from others in terms of adapting to a certain norm considered as status-worthy by others. The individual thus has sufficient freedom to choose the most efficient way to attain status on the basis of his or her status norms. Another reason for this may be that people with high status are more likely to attribute success solely to themselves instead of also considering the potential share of other in it since this would not increase their relative status. However, as previously discussed in this section, the degree to which an individual pays attention to the way he or she communicates / shows status mainly depends on the cultural standards. A collectivistically-oriented individual might gain the highest degree of relative social well-being and status (compared to the reference point) through a collectivistic behaviour in a rather collectivistic culture, while rather individualistic people can attain the same degree of social well-being and status (compared to the reference point) behaving individualistically within an individualistic culture.

2.4.5 Interim Conclusion

The previous overview of the research on status from a sociological perspective has clearly indicated that status cannot just be considered from an economic point of view but that also the social dimensions of the problem need to be taken into account. The incorporation of these two perspectives has been neglected for long time in the literature. This may be why, so far, no general theory for status in consumption behaviour has evolved. Two contradicting assumptions within the social and the economic perspective might be possible reasons for this. First, according to Mason (2002) and the previous overview of the economic literature on status, within economics the rational based behaviour rather than the irrational (psychological) behaviour has been considered a central aspect serving as the basis for all economic formulas. Secondly, Shukla (2008) mentions that the functional utility of a product serves as a key element in the assessment of a product’s value and the final decision to purchase it or not by the costumer. The obvious problem with these two assumptions is that all resulting economic frameworks completely disregard the “irrational” element of individual behaviour (Bourdieu 1989). As previously shown in section 2.4 of this ERP, status seeking can be considered to a large degree as an irrational and psychological behaviour which is not measurable, as some economic formulas indirectly assume. The adaption of a social perspective is adequate and required at the same time in order to consider also the social elements of individuals’ decision making (O’Cass and Frost 2002; Shukla 2008). Finally, it can be concluded that the economic and the social perspective should not and cannot be considered as two silos treated separately. Moreover, an integrating view on both perspectives is necessary and mandatory though quite difficult to reach, which brings us to the last section of this chapter.

2.5 Integrating View on the Different Disciplines

There are many natural intuitive aspects shared by all individuals which can be used to consider the different perspectives in an integrative view. One natural desire of humans is their genuine interest in their relative position in all kinds of rankings, be it an income rankings, in sports, or in universities, which gives them a certain relative position within society as a whole as well as in their respective reference group(s) in particular.

In his breakthrough work The Theory of the Leisure Class, Veblen (1899), holds that certain goods do not have only material but also “honorific” properties and that to a certain degree their consumption might be an indicator for social class. Duesenberry (1949), then, is the first more economically oriented researcher who abandons the basic view in which he considered the individual as a rational being who only cares about his/her absolute income and the absolute utility derived through the consumption of a certain product. Duesenberry goes even one step further with his RIH by also implementing some viewpoints discussed in the sociological literature (mainly in psychology). He introduces the relative perspective and argued that an individual’s spending behaviour could only be explained by focussing on the person’s relative rather than his/her absolute position to reach through the consumption of a specific product. Duesenberry tries to show that the sole consumption of a good does not necessarily satisfy the needs of its consumer, but that an individual’s decision to pay the money for it is also based on his or her status, class, upbringing, taste and aspirations. Hence, a framework as proposed by Keynes (1936) with the aggregated utility function turns out too limited since it does not mention any sociological aspects which might influence such decisions. With the RIH it is at least possible to incorporate some of the presented social motives which determine individual behaviour.

All in all, the RIH may serve, despite some still existing ignorance in sciences toward it, for more precise and adequate descriptions since it indirectly determines the position that an individual is able to achieve depending on its reference groups. The importance of the relative utility is another proof of the breakthrough observation by Easterlin (1974), who finds that the experienced happiness within a country does not grow as the citizens receive higher wages. Frank (1999) as well as Frey and Stutzner (2001) agree on Easterlin mentioning that it is not the absolute income level which determines an individual’s happiness but rather the relative income level. These findings by Easterlin (1974) and others, through the comparison of the two major disciplines, indicate that income, which is traditionally considered as the variable through which an individual can attain status, is not the decisive and sole variable for being considered as status-worthy. The discussions on conspicuous consumption (see section 2.2.1) have shown that individuals do not only base their decisions to consume conspicuously on economic factors (e.g. price spent for a product) but also on cultural traditions (individualistic-collectivistic as analysed in section 2.4.4) as well as on their value, norms and social environment. Additionally, the decision to consume conspicuously is also influenced by the social structure and by the means through which social mobility is achieved. As mentioned by Mason (1985), the degree to which an individual demands status goods is mainly affected by the subcultures he or she belongs to and, more specifically, which reference groups have the strongest influence on the individual’s aspirations. Hence, the different characteristics of the three factors, i.e. social class, reference group and individual itself, determine an individual’s behaviour. These several factors have to be considered altogether because they shape the “social character” and form the criteria for the decision whether conspicuous consumption should be followed or rejected.


[1] This phenomenon is not limited to the consumption of material products, but can also be observed with other things, like education. In this section, however, it is limited to the notion of expenditure cascades.

[2] Some governments minimize the wasteful and inefficient phenomenon and improve social welfare by implementing a consumption tax on certain (mainly luxury) goods to diminish externalities.

[3] In particular, it is inconsistent with the PIH (Friedman 1957) as well as with the life cycle hypothesis (Modigliani and Brumberg 1955).

[4] Moreover, most researchers value the relative income hypothesis because, according to them, it serves as a good measure for spending schemes. As previously mentioned, we believe that the amount of savings does not necessarily depend on the disposable income, because even many wealthy people participate in status races by over-consuming through loans in order to maintain or preferably improve their relative status position.

[5] Easterlin (1995) also sees the same patterns in Japanese society, a country with one of the biggest real per–capita-income increases since the Second World War.

[6] While some individuals focus more on the independent self-concept with their self-related goals or needs, others are more concerned with their interdependent self-concept and the opinion of others about specific things.

[7] One of the possible strategies to attain status for people who (have to) abandon mainstream norms is the strategy of voluntary simplicity which will be introduced in the next part.

[8] We have decided to consider the interventions of governments to correct the effects of the externalities through the implementation of taxes rather as a topic which falls into the economic part of this literature review (see section 2.3) since such interventions are mostly driven by economic motives.

[9] The six defined dimensions are small vs. large power distance, individualism vs. collectivism, masculinity vs. femininity, weak vs. strong uncertainty avoidance, long vs. short term orientation, indulgence vs. restraint.

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Impacts of Interdependencies between Strategies on an Individual's Increase in Relative Status - An Exploratory Study
ESCP Europe Business School - Campus London  (Institut für Marketing)
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Abstract auf Deutsch, Englisch und Französisch
status, relative status advantage, consumer behaviour, strategy, signalling, economic capital, cultural capital, Bourdieu
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Marcel Mazur (Author), 2011, Impacts of Interdependencies between Strategies on an Individual's Increase in Relative Status - An Exploratory Study, Munich, GRIN Verlag,


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