Watson Institute for International and Public Affairs

Gautam Rao ─ Status Goods: Experimental Evidence from Platinum Credit Cards

Wednesday, October 12, 2016

4 p.m. – 5:30 p.m.

McKinney Conference Room

Economists have long hypothesized that social status considerations are a powerful driver of consumption choices (Veblen 1899). But empirically identifying status goods is difficult, since status components of consumption are confounded by unobserved instrumental utility. We work with a large bank in Indonesia to market their widely-recognized platinum credit cards, typically restricted to high-income customers, to a marginally eligible population of customers. In a control group, customers are offered all the financial services and benefits of the platinum card, but as an included upgrade on their existing nondescript credit card. In two treatment groups, customers are instead offered the platinum card itself. We find that demand for the platinum card is substantially higher than demand for the instrumental benefits, providing evidence of the importance of image considerations. We provide evidence that the demand for the platinum card appears to be driven substantially by social image concerns, rather than self image or identity. We find that it is the less-rich (middle-class) individuals in the sample who show a demand for the social image aspect of the platinum card, rather than the very rich. An analysis of the utilization of the credit cards reveals that platinum card holders are causally more likely to use the card in social situations such as restaurants, bars and clubs, where the card may be visible to others. In contrast, there are no effects on more private uses of the card, such as online purchases. Finally, we provide evidence of "fashion cycles" in the marketing of elite credit cards, consistent with models of status goods (Pesendorfer 1995).

Gautam Rao is an Assistant Professor at the Department of Economics at Harvard. Gautam received his Ph.D. in Economics from UC Berkeley in 2014, and spent a year as a post-doc at Microsoft Research before moving to Harvard. Gautam's research brings insights from psychology to bear on topics in economics, particularly topics relevant to developing countries.

Development and Governance Seminar