Thursday, November 27, 2014

The Biology of Luxury

PARIS – Despite the global economic crisis, sales of luxury goods are surging worldwide. Why? While marketing has contributed to the rise, the luxury market’s robust growth is actually rooted in biology.

Discussions about the structure of human thought have long been dominated by the Enlightenment view that reality is composed of four elements: space, time, matter, and energy. But recently, a fifth element, information, has entered the debate. And information, it turns out, is crucial to understanding the fundamental drivers of luxury-goods consumption, and thus to predicting the luxury market’s future.

Living organisms communicate, and the information that they exchange shapes their reality. While animals use colorful displays and complicated behaviors to signal fitness and strength, humans use luxury goods to demonstrate economic health.

But, more than a symbol, buying luxury goods could indicate future success, owing to the selective advantage that showing off provides. In nature, competitors perform, and the most compelling, beautiful spectacle wins.

For most animals, males are the performers. Male birds, for example, often have brightly colored plumage or intricate appendages, such as the Australian lyrebird’s long tail.

As a result, competitive displays have been interpreted as a way to demonstrate fitness to a potential mate. A bird that survives, despite inconvenient plumage that slows it down or makes it visible to predators, must be fit, and will likely sire a healthy progeny.

Given that females bear the physical burden of offspring, an unobtrusive appearance is more advantageous – and thus more common – in nature. But humans are social creatures with no natural predators, so female competition is more widespread – and demonstrative performance and display are more likely. Indeed, while visual manifestations of wealth are prevalent for both genders, women’s appearance is frequently more vivid (and more closely scrutinized).

But effective display is costly. Developing complex, vibrant plumage demands significant energy and genetic resources. Genes are difficult to maintain, requiring subtle and energy-intensive correcting processes. Just as writing too fast can cause typographical errors that garble a text, rapid changes to the genome can undermine a species’ integrity.

Likewise, purchasing luxury goods requires substantial financial resources. This cost dictates the display’s competitive impact. In today’s information-based world, selection is effective only if a striking appearance is obtained at a very high price – and that price is known.

For example, those who use cosmetics known to be expensive often seem healthier, more vibrant, and more attractive than those who do not. This is not the result of efficiency (the most effective cosmetics frequently become pharmaceutical drugs). Rather, it signals a lifestyle that values the preservation of beauty and youth. Cosmetics, like all luxury products, gain influence not from their production, or even their purchase, but from their visibility.

Indeed, an expensive item with no label or identifying characteristics has less competitive impact than a recognized item or brand. For luxury goods to have any function, society needs information about their cost. This has been true to varying degrees throughout history – sometimes resulting in price bubbles.

False information, such as counterfeit goods, jeopardizes the competition-based selection process. Animals commonly use mimicry to capitalize on knowledge – or fear – of another’s strength. By imitating an animal with a well-known protective profile, a weaker one may enjoy selective benefits without the costs.

But mimicry’s success in nature depends on the ratio of the original to the ersatz. If there are too few of the original, the profile loses its significance, and its protective value vanishes.

Similarly, nobody would display a symbol of wealth if it were too common. Therefore, assessing whether luxury goods will maintain their impact, and thus their appeal, requires monitoring the extent of counterfeiting.

Given that luxury goods provide individuals with a competitive advantage, higher luxury-goods sales could indicate a brighter economic future for a country. In a time of crisis, countries in which luxury goods play their selective role effectively are the safest bets for productive investment.

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    1. CommentedSuren Ter-Avakian

      Luxury should be defined as objects or services not essential to human beings, including those which include superfluous functions and superfluous design features whose purpose is to raise prices with the goal of limiting access, thus transforming them (partially or completely) into symbols of wealth. In other words, luxury is a symbol that gives visual proof of its owner’s social importance.

      Why, then, do people “need” luxury (or luxury features), if they are not physically necessary for human life? What makes luxury so alluring?

      The luxury fulfills a most important function in a person’s life. By giving a visual demonstration of a person’s level of success and his or her social status, luxury defines a person’s significance in society. The determination of a person’s social importance is extraordinarily important for every single person. Money acts as a marker of importance. The higher the amount of money earned by a person, the higher his or her social status. But a person’s earnings cannot be directly seen by other people. For that reason, a person feels obliged to give visual form to part of his or her money by transforming it into luxury goods and good with luxury features, thus demonstrating his value and importance. Luxury and luxury features have penetrated all the goods surrounding us, at all social levels. Luxury requires colossal investments of our labor and materials, but its sole purpose is to demonstrate its owners’ social significance.
      More details:

    2. CommentedAsim Rai

      "But, more than a symbol, buying luxury goods could indicate future success, owing to the selective advantage that showing off provides."
      Should one even take this comment seriously? Success is perhaps related with luxury in some form, but they are not brother and sister. The only worthy purchase is an investment that directly contributes in engendering success. Luxury is an excess purchase with a volatile value.

      "In nature, competitors perform, and the most compelling, beautiful spectacle wins."
      Correct, and in nature, beauty was not purchased. The cost was natural/biological as you already know. Success usually comes through the beauty of human nature and the productivity it can potentially create.

      "Indeed, an expensive item with no label or identifying characteristics has less competitive impact than a recognized item or brand."
      You haven't travelled much. Go to Scandinavian countries and see how the 'more less' equates to better taste.

      I wish I could care more about picking several other quotes, but this is one of the most ignorant and naive articles I have read on this site.

    3. CommentedNathan Coppedge

      This is a vibrant and yet superficial thesis rife with secrets which may not pay out.

      Where one person will say that it is the measure of consumerism---including luxuries---which states most plainly economic advantage, there is a clear counter-thesis, that luxury goods indicate a reliance on borrowing money, as famously took place in the 1920's, and continues especially in the military branches of the government. It is one thing to say that a new military tank is a form of plumage, and still another to say that it has no expense.

      More important to the resulting thesis or theses may be the need for conceptual tools beyond what I have heard criticized as meaningless Bayesianism, and towards the forthright support of luxury citizens; I have heard hints in Esther Dyson's posts at Project Syndicate that there is a need for crowd-sourcing the common denominator, whether this incidentally means government affiliates, small companies, college students, think tanks, or just about anyone. I don't find the idea unappealing, in fact I think there is more potential than is commonly believed to tap citizens even for advanced economics principles. Perhaps it is this kind of stratified, cognizant use of capital that you mean to reflect on in your reference to plumage. I'm not sure that your readers are likely to consider surfacial capital as something that is metaphorical at all.

      Yet, surfacial characteristics are an interesting alternative to Darwinism, when it comes to that. Maybe this is not what anyone would intend, but if it were possible to create a complex surface, a complex value, perhaps that would pass as a financial principle that could make some contentions.

      I describe a related principle in my blog post Precepts of Dimensional Economics, which can be found on Twitter and elsewhere.

    4. CommentedFrank O'Callaghan

      The global surge in luxury goods has a biological basis. There are also political and economic reasons.

      The growth in wealth of a small minority of the population in the face of the impoverishment of a much larger population has a great deal to do with this.

      Our planet and our society is more integrated and interdependent than ever. Expending precious resources on superfluous "luxury" goods when so many are in real need of necessities is a clear exposition of the inefficiency of our resource distribution systems.

      We should immediately reduce inequality.

    5. CommentedProcyon Mukherjee

      Thorstein Veblen did caution us, “It is only at a relatively early stage of culture that the symptoms of expensive vice are conventionally accepted as marks of a superior status, and so tend to become virtues and command the deference of the community; but the reputability that attaches to certain expensive vices long retains so much of its force as to appreciably lesson the disapprobation visited upon the men of the wealthy or noble class for any excessive indulgence.”

      I would rather believe that conspicuous consumption cannot be the hall mark of a hard-earned labor; rather the worthy would indulge in conspicuity of savings which can be transformed into investments for the future. The problem of the world is not enough consumption, but not enough savings, where the excess needs to go, driving investment behavior to be modeled not on fretting away hard-earned but in building a gainful share of the world’s best offerings to those who aren’t that fortunate.

      Procyon Mukherjee

    6. CommentedPaul Ross

      I hate to sound to terribly critical, but wasn't this covered by Thorstein Veblen, in Theory of the Leisure class in 1899?

      But it is nice to see conspicuous consumption raise it's head again in modern dialog.