This article explains the reasons behind the consumption of expensive luxury goods through the expensive signaling hypothesis. People buy expensive products to show off their social status and ability, a behavior that may be economically irrational but is essential for gaining social acceptance and favorable opportunities.
If you watch Korean dramas, you’ll often see actresses who are portrayed as wealthy carrying luxury bags like Hermès. This scene leaves a strong impression on the viewer, symbolizing the character’s social status and economic power. However, the bag can be replaced with a product that fulfills the same physical function for a much lower price. So, from an economic point of view, a bag that is durable and has the basics is sufficient. Still, why would students choose to buy a much more expensive maker’s product? One hypothesis that opens up the possibility of interpreting this is the expensive signaling hypothesis.
The costly signaling hypothesis suggests that beings who actually have greater capabilities differentiate themselves from others by making excessive behaviors and displays than are necessary. In this case, the signaling consists of things that are difficult to imitate by individuals who do not actually have the ability. This allows individuals with superior abilities to be perceived differently by others than individuals with lesser abilities, allowing them to gain benefits such as survival more effectively. This hypothesis explains the behavior behind seemingly economic irrationality and can be applied to many aspects of human society.
An example of this is Mr. Sangsaman from the Korean drama Misaeng. He works for a company that exports and imports to foreign countries, and he does everything he can to close deals between companies, including dressing himself up. When they go to meet with their business partners or buyers, they drive foreign cars, wear expensive suits, ties, shoes, watches, etc. to implicitly show that they are of this caliber. This is because the other person who sees these things will judge the person by these factors and treat the person accordingly. This allows the bossy man to have a smoother transition to the other side of the transaction.
An animal example is the peacock. The more capable peacocks have larger tail feathers than the less capable ones, and this sends a signal to other females that says, ‘I’m good enough to do this and survive,’ sending a signal of competence that others can’t replicate. This allows the peacock to achieve outcomes that are commensurate with her abilities compared to other peacocks. Examples like this can be found in human society, most notably in luxury consumption patterns.
This expensive signaling hypothesis helps us understand why we spend more than we can afford. Take a look at any residential neighborhood in Korea, and you’ll see that the houses are obviously very small, and the parking lots are filled with expensive foreign cars despite the inconvenience of living there. It’s clear that buying a cheaper car and living in a nicer place will give you a better quality of life while still owning a car. Similarly, there are people who wear expensive suits even though their homes are very small and they don’t have much to live for. This is even though there is no functional problem with wearing a cheaper suit.
What both of these common sense examples have in common is that they are trying to increase their value to others by spending a lot on the “visible part” at the expense of the “invisible part”. The idea is to send expensive signals at the expense of other things, and to try to get the same response from others by pretending to be objects that are actually capable of sending expensive signals. It’s a strategy to strengthen one’s social position and gain access to better opportunities.
Furthermore, these consumption patterns can be driven by social pressures and expectations beyond just personal desires. For example, a student at a prestigious university may carry an expensive luxury bag not just to show off their economic power, but because they have internalized these social norms themselves. This can be understood as a way to feel socially integrated and included, and to gain recognition and respect from others.
This expensive signaling hypothesis suggests that people earn the respect they deserve by demonstrating something that only they can do that others can’t replicate. This explains why expensive products are produced and consumed when they fulfill the same function, and why consumption that may seem irrational from an economic perspective occurs. However, when it comes to understanding the above examples of pure “consumption”, the costly signaling hypothesis does not fully account for the fact that individual satisfaction and individual needs vary.
In addition, the expensive signaling hypothesis has not been studied much in humans, so I think that further research may yield significant results. For example, it would be very interesting to study how cultural background or individual psychological characteristics affect these consumption patterns. Furthermore, exploring the relationship between self-expression through social media and expensive signaling in the digital age could be an important research question.
In conclusion, the costly signaling hypothesis provides an important theoretical framework for understanding consumer behavior, allowing us to gain a deeper understanding of the motivations and purposes behind seemingly economic irrational behaviors. In doing so, not only consumers, but also companies formulating marketing strategies can utilize this hypothesis to develop more effective approaches.
