# **1 Introduction**

Social image concerns affect many important behaviors, from donations to political behaviors to student effort (Perez-Truglia and Cruces, Forthcoming; DellaVigna et al., 2012, 2017; Bursztyn and Jensen, 2015; Enikolopov et al., 2017). A fundamental economic behavior – consumption – may also be shaped by social image concerns. Specifically, a desire to signal high income or wealth may cause consumers to purchase _status goods_ .<sup>1</sup> In theory, such conspicuous consumption can impose negative positional externalities, and lead to wasteful spending in a consumption rat race.<sup>2</sup> Empirical research has highlighted the potential role of conspicuous consumption in important economic phenomena such as the wealth gap between Blacks and Whites in the United States (Charles et al., 2009), bankruptcy decisions (Agarwal et al., 2016, 2017), and large expenditures on weddings (Bloch et al., 2004) and festivals (Rao, 2001) among the poor in developing countries.<sup>3</sup> However, directly testing for status concerns in consumption is challenging. With observational consumption data, it is difficult to fully separate unobserved consumption utility from a desire to signal high income. For example, a person who buys a Ferrari and an Armani suit could simply have a particularly strong taste for nice cars or fashionable clothes. Moreover, such consumption decisions could be driven by self-image and identity, rather than social image. That is, consuming the types of goods associated with wealth might provide an individual with psychic utility, even if that consumption was invisible to others (Akerlof and Kranton, 2000). More generally, self-image or identity and the demand for status could be deeply connected, and it remains an open question whether self and social image are substitutes or complements. Nor do we understand whether the demand for social image is purely instrumental, or instead is also valued for hedonic reasons.

In this paper, we (i) provide the first field-experimental evidence of the existence of status goods, and shed light on the magnitude of the demand for status; (ii) test for the associated positional externalities; and (iii) show that the demand for status is in part psychological (as opposed to purely instrumental), with social image acting as a substitute for self-image. We work with a large bank in Indonesia to design three related experiments that market the bank’s popular platinum credit cards. The credit cards in our experiment are widely-recognized throughout Indonesia.<sup>4</sup> They are typically restricted to high-income customers, and come with a number of instrumental benefits, such as a higher credit limit and discounts on the purchase of luxury goods. Our sample consists largely of urban, (upper) middle-class bank customers. We consider this an important context in which to study conspicuous consumption. The developing world is experiencing rapid economic growth

> 1 See Veblen 1899; Duesenberry 1949, and Bagwell and Bernheim 1996.

> 2 See, for example, Frank 1985, Banerjee 1990 and Hopkins and Kornienko 2004.

> 3In fact, the role of income-signaling in consumption was already pointed out by Adam Smith in the _Wealth of Nations_ : “A linen shirt, for example, is strictly speaking, not a necessary of life. [...] But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct” (Smith, 1776).

> 4We confirm that the cards are viewed as prestigious, using survey evidence presented below.

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