The Price of Prestige

26 chapter one

preferences, which are in turn defined only by behavior. The result can

very easily be circular, and in many formulations undoubtedly is. Often

nothing more is stated than the conclusion that people behave as they

behave, a theorem which has no empirical implications, since it contains

no hypothesis and is consistent with all conceivable behavior, while refut-

able by none.”^50

The study of Veblen effects is a social extension of traditional ratio-

nal choice approaches and hence is susceptible to comparable circularity.

Theorists try to circumvent this problem by focusing on the consistency of

actors’ choices (Samuelson 1947 , 92 ). Thus, demand theory cannot explain

one act of consumption of a specific consumer, but it can suggest that on

average consumers will buy more goods as prices go down. Similarly, neo-

realism provides little analytical leverage when it comes to explaining spe-

cific events and instead focuses on explaining general patterns of behavior

under different structural conditions. Accordingly, repeated be havior that

meets the expectations of the theory increases our confidence that we are

analyzing actors’ preferences correctly.

So, how do we know when international actors are engaged in conspicu-

ous consumption? The theory generates several expectations around which

we should identify consistent patterns of behavior. First, actors’ sensitiv-

ity to price should be inversely correlated with the conspicuousness of the

goods. Because inconspicuous goods cannot be observed by others, they

offer no social utility. Accordingly, the consumption of such goods is moti-

vated by primary utility alone and is thus subject to the classic expectations

of demand theory. More conspicuous goods allow for secondary- utility

considerations to kick in, at times inverting the relation between price and

demand. Basman, Molina, and Slotjje ( 1988 ) find that the conspicuousness

of the good affects the elasticity of demand, with more conspicuous goods

being less elastic than less conspicuous ones. When faced with hard times,

consumers need to decide which goods they can no longer afford. Accord-

ing to this argument, individuals are likely to give up their health insurance

before settling for an older car or cheaper clothes: “No class of society, even

the most abjectly poor, forgoes all customary conspicuous consumption.

The last items of this category of consumption are not given up except un-

der stress of the direst necessity. Very much of squalor and discomfort will

be endured before the last trinket or the last pretense of pecuniary decency

is put away” (Veblen [ 1899 ] 1979 , 85 ).

Second, the theory identifies the actors who are likely to engage in con-

spicuous consumption more frequently and with greater fervor. Actors