The Science of Veblen Goods

 

 

 

 

 

 

 

 

 

 

 

 

Nothing exposes human folly quite like our willingness to pay more for something simply because it costs more. 

 

These "Veblen goods", named after US economist Thorstein Veblen who first mapped this peculiar behavior, reveal how deeply status-seeking is wired into our psyche. People aren't just willing to pay premium prices for luxury cars (think Rolls-Royce) and designer handbags (think Hermès Birkin) – they actively desire these items more when prices surge.

 

Brands such as Aston Martin, Bugatti, Cartier and Dior are perceived to be worth more, simply because they cost more. They are not actually any better than their counterpart goods in their category. Their price alone makes them desirable. The most obvious paradox concerns function. Luxury goods are clearly not purchased to satisfy so-called primary needs. Their function is psychological – they promote a sense of being financially powerful and they serve as markers of a real or projected status in society. 

 

This mass delusion comes at a steep societal cost. Researcher B Curtis Eaton describes Veblen goods as "deadweight loss" – burning money on the altar of status competition. [Refer to his and Jesse A Matheson's treatise "Resource allocation, affluence and deadweight loss when relative consumption matters" published in Journal of Economic Behavior & Organization, Volume 91, July 2013, pages 159-178].

 

The science behind this self-deception is almost comical. A 2007 study by K Fliessbach, et al, "Social comparison affects reward-related brain activity in the human ventral striatum" published in Science found that when people compare their rewards to others, it directly affects activity in the brain's reward centers. 

 

The researchers conducted fMRI scans of pairs of subjects performing tasks for monetary rewards, and found that the ventral striatum – a key reward processing region – responded to relative payment differences, not just absolute rewards.

 

As already stated, the higher prices of Veblen goods make them desirable as a status symbol. Take the Rolex Daytona watch (right), which routinely sells above its already stratospheric list price. Buyers aren't purchasing a timepiece – they're buying membership in an imaginary club of supposed superiority. 

 

As Veblen himself wrote: "Conspicuous consumption of valuable goods is a means of reputability to the gentleman of leisure".

Hearing of MH370 Lawsuits in China

Today, the Chaoyang District People’s Court in Beijing, China begin hearing lawsuits over the missing Malaysia Airlines flight MH370. 

 

The aggrieved families of the Chinese passengers on the ill-fated flight had sued the airline, Allianz, their insurer, Boeing and Rolls-Royce, the manufacturer of the plane’s engine – companies they believe should be held responsible under Chinese law for damage occurred during transportation. Their demands include compensation, a formal apology, and the resumption of psychological assistance to family members, as well as the creation of a fund to continue searches for the plane. 

 

About 40 Chinese families are taking these companies to court with varying but largely overlapping appeals, with hearings expected to last until December 05. Of the more than 200 people aboard the flight that disappeared from radar on March 08, 2014, 153 were Chinese nationals. 

 

It is unclear what enforcement power the Chinese court can wield over the defendants if they rule in favor of the plantiffs. All of them are international companies headquartered outside China, though Malaysia Airlines, Boeing and Roll-Royce have offices in China. 

 

Similar cases brought in the United States by the victims’ families have been dismissed on the grounds that these lawsuits should be handled by the Malaysian legal system.

The war with Hamas is costing Israel at least $269 million a day and is expected to hit the country’s economy harder than previous conflicts, ratings agency Moody’s have said in a report based on Israeli Finance Ministry estimates. 

 

The overall cost of the war could reach as much as 200 billion shekels ($53.5 billion), nearly 10% of GDP, threatening Israel’s economic future, the Moody’s report revealed this week, citing data from the Institute for National Security Studies.

 

“The severity of any damage to the economy will depend – to an important extent – on the length of the military conflict but also on the longer-term prospects for Israel’s domestic security situation”, Moody’s senior VP Kathrin Muehlbronner said. 

 

For Israel, much of the economic shock will come from reduced investments, disruptions in the labor market, and slowing growth of productivity, economists warn. 

 

A looming economic downturn prompted Moody’s to revise downwards their growth forecast for the Israeli economy from the 3% previously expected to 2.4% this year. In their grim 2024 outlook, the ratings agency see GDP contracting by about 1.5%. 

 

The agency, which placed Israel’s A1 credit rating on review for a possible downgrade, also predicted that a prolonged conflict would force the government to spend billions of shekels on defense, including the wages of thousands of drafted reservists. Massive spending will also include funding for compensation for war-affected businesses and the reconstruction of devastated communities. Meanwhile, state revenues, mainly tax income, will continue to slump as consumption, among other demand factors, is plummeting, with the absence of around 18% of Israel’s workforce during the war.

 

Economically considered, war is bad for a country's economy.

Spirit of Ecstasy Gets a Makeover

The Spirit of Ecstasy is getting a makeover as Rolls-Royce prepares for its next chapter. 

The British marque celebrated its 111th birthday by unveiling a new, more aerodynamic version of the Silver Lady on February 06, 2022. The newest version of the iconic hood ornament will sit on the nose of the brand’s first EV, the Spectre, due out in 2023. 

If you compare the new Spirit of Ecstasy to the one currently gracing the automaker’s vehicles, one thing will immediately leap out – the difference in size. The just-unveiled version stands 3.3 inches tall, which is a full 0.7 shorter than the current ornament. 

That’s not the only change, though. Her robes, which flow behind and are often mistaken for wings, have also been reshaped to make them more aerodynamic and lifelike. Even her stance has changed. Whereas before her feet were together, they are now apart and with one ahead of the other. 

Rolls-Royce describes her as “a true goddess of speed, braced for the wind, one leg forward, body tucked low, her eyes focused eagerly ahead”. 

In fact, these changes actually bring the ornament closer in line with the original design by illustrator and sculptor Charles Sykes, according to the brand. 

The luxury car maker also combine to make the Silver Lady more aerodynamic than ever before. That would appear to be the main reason for the alterations. 

The Spectre, which the new Spirit adorns, is already Rolls-Royce’s most aerodynamic vehicle yet, with a drag coefficient (cd) of just 0.26, something which will help improve battery efficiency. With a year of testing left to go, the brand expects this figure to improve. 

It is said that the new hood mascot is to be used on all new Rolls-Royce cars going forward, while the current version will continue to be used on the Phantom, Ghost, Wraith, Dawn and Cullinan. 

Torsten Müller-Ötvös, chief executive of Rolls-Royce Motor Cars, said of the new figurine: “Like our brand, she has always moved with the times while staying true to her nature and character. In her new form she is more streamlined and graceful than ever before – the perfect emblem for the most aerodynamic Rolls-Royce ever created, and for gracing the prow of our bold electric future”.

Luxury Brands Feature Dragons

It's meant to bring riches and power befitting an emperor, but if Western luxury brands have their way the Year of the Dragon will cost their wealthy Chinese customers a fortune instead.

French high-end accessory maker ST Dupont has rolled out limited editions of pens and lighters adorned with gold-plated dragons embellished with 88 diamonds around the dragon’s body and eyes. The price? Between HK$300,100 (RM120,131) and HK$390,700 (RM156,398).

Swiss luxury watchmaker Piaget launched 24 Dragon watches with a price range from HK$193,000 (RM77,258) to HK$16 million (RM6.4 million).

Image credit: http://www.luxuo.com/luxury-phones

Nokia’s luxury brand Vertu is celebrating the Lunar New Year with a luxury dragon-themed mobile phone based on its Signature collection. Each quad-band dragon phone comes in stainless steel with emeralds, black steel with Rubies, or gold with diamonds. The handsets cost about $20,800.

Image: Plush Asia

Italian fashion house Versace's Dragon Year gambit is a specially designed jewel handbag, which comes with a gold handle and traditional golden dragon drawings on a black body. The handbag is also studded with precious stones and each one is engraved with “Year of the Dragon 2012” tags along with a limited edition number. The bag is limited to 210 pieces and sold exclusively in Asia.

The bag is priced at HK$31,800 (RM12,700), while an even more exclusive red python skin version will set you back HK$45,000 (RM18,000). Versace says the product is "testament to the brand's focus on the Asian market".

"The dragon means good fortune, power and success," says Torsten Muller-Otvos, chief executive at Rolls-Royce Motor Cars, the German-owned automaker which has launched a line of limited edition "Dragon" Phantoms.


Image credit: http://www.bloomberg.com/news/2012-01-11/rolls-royce-sells-out-dragon-phantom-in-china.html

The edition, available in two models, features hand-painted golden dragons on the side panels, hand-embroidered dragons on the leather headrests and illuminated door treadplates with the words "Year of the Dragon 2012".

The car, which starts at 7.4 million yuan ($1.2 million) in China, was sold out within eight weeks of its launch in August, and the firm says it is now looking at extending production.

China overtook the United States to become Rolls-Royce's largest market in 2011, with the Chinese market accounting for about one-third of its record 3,538 cars sold worldwide.

Luxury brands are really hoping to reap riches in the Year of the Dragon!