Identity Signaling with Social Capital: A Model of Symbolic Consumption

Abstract

People consume not only physical goods but also social interaction, and consumer choices depend on both intrinsic motivations (preferences for consumption) and extrinsic motivations (how choices impact social interactions). In this paper, we study how social identity, preference, and utility from social interaction shape consumer behavior and choice in the marketplace. Our contribution is two-fold: first, we present a novel modeling framework that captures heterogeneity in the distribution of intrinsic preferences and social capital in a social network, and demonstrate how rational consumer choice driven by social utility influences the demand for goods. Second, we show how this framework can help explain why trends may emerge out of insular market segments, why some inconspicuous behaviors may become effective signals of identity, and why some very highly popular products may suddenly experience a loss in market interest. We discuss implications of such behaviors for product demand generation, innovation, and advertising.

Keywords: social identity, social influence, contagion, conspicuous consumption, fads, fashion, economic models, signaling models, game theory

JEL Classification: D11, D82, D85, M31