Re:Does anyone need an SUV? (game theory) (Score 1)

The element of comparison in positional goods is what leads to the development of consumerism. There are many examples of positional goods that figure prominently in our society, but the most commonly noted one is status. Status is intrinsically comparative, in the same way that wanting to be above average is. And individuals often purchase goods in order to achieve status - hence the well-known phenomenon of conspicuous consumption. The problem with the quest for positional goods, according to the liberal view, is not that it is unseemly to try one-upping one's neighbours, but that when one's neighbours try to do the same, the interaction has a suboptimal, or Pareto-inefficient outcome. It is a type of prisoner's dilemma.

According to this view, the sense of dissatisfaction associated with consumerism is a consequence of the suboptimal outcome that this interaction pattern generates. Suppose that two neighbours each want to project an image of success, and that projecting such an image becomes essential to their sense of well-being. The problem, of course, with projecting an image of success is that success is entirely relative. What were considered sure signs of prosperity and success twenty years ago are now just rudimentary components of a middle-class lifestyle. The only way to project success is to appear more successful than one's neighbours - to drive a nicer car, have a larger house, and so on. Thus comparative consumption can easily become competitive consumption. And in many circumstances, this competition becomes a race to the bottom.

Suppose that both neighbours are working a standard week, and driving modest sedans. However, by putting in a bit of overtime, it is possible for each to buy a more expensive car, say an SUV. Suppose further that the extra status associated with being the only one to own such a vehicle is of greater value than the foregone leisure time, and that the humiliation associated with being the only one not to own such a vehicle is worse than the loss of leisure.

Both neighbours will decide to work harder, either to get the extra status, or just to avoid the humiliation. As a result, they will wind up right back where they started - both driving the same type of car, both having the same relative status - except that now they will be working harder in order to maintain their lifestyle. Thus the outcome produced through status competition is inferior, from both of the participants' perspectives, to the situation that initially obtained. (Notice, incidentally, that the possibilities for status competition are limited by the range of consumption goods available. The appearance of exotic new consumption goods makes it possible for individuals to distinguish themselves in a new way. Thus consumers can be harmed by the introduction of new status goods, even if they voluntarily purchase them.)

excerpt from:
The Structure of Hip Consumerism
by Professor Joseph Heath