Reports

Working Paper

Identity Signaling with Social Capital: A Model of Symbolic Consumption

Jonah Berger, Benjamin Ho, and Yogesh Joshi, 2011, 11-104

Report Summary

The popularity of products, activities, behaviors, and opinions depends not only on the intrinsic merit of the thing itself but also on the extrinsic value that individuals and groups place on it. To understand why a fashion accessory, a social-networking site, or a political stance rises in popularity among certain groups and then is dropped, one must understand that multiple factors contribute to the utility of adopting the item. Consumption decisions signal people’s identity, are affected by people’s place in a social network, and both influence and are influenced by other network members’ opinions and consumption decisions. A model that permits nuanced representation of players in a social network and the influences under which they operate would benefit a diverse array of people interested in human behavior, including product developers, marketers, and political strategists.

Here, the authors study how social identity, preference, and utility from social interaction shape consumer behavior and choice in the marketplace. Using game theory, they develop a model that shows how social factors create trends in consumer adoption of products and behaviors—and in their abandonment of those products and behaviors.

Seven characteristics define the model: (1) players make consumption choices each period. (2) Utility comes not only from a player’s consumption, but also from how that consumption shapes how others perceive the player. (3) In each period, players are randomly matched to another player. (4) The frequency of interaction between any two players forms the game’s social network. (5) Players observe others’ consumption choices and use that information to make inferences about others’ type (i.e., their social characteristics). (6) How each type is perceived determines the social payoff for each player. (7) Consumption offers both intrinsic utility (i.e., utility based on functional benefits) and extrinsic utility (i.e., utility relating to how consumption affects social image).

When any player is matched with any other player, the first may perceive the second as either an associate, if the second is of a type the first likes, or as a disassociate, if the second is of a type the first dislikes. The relationship is not symmetric. Player A may consider Player B an associate, but Player B may consider Player A a disassociate. In the latter case, Player B considers Player A to be an imitator, and Player A considers Player B to be an insider.

From these parameters, the authors outline nine propositions, with proofs, regarding people’s consumption behavior. These propositions explain why trends originate not only in high-status groups, but also in marginalized communities (e.g., poor urban youth; gay men in the 1980s). They also explain the mechanism of transmission to the general public.

In addition, the model explains why sometimes inconspicuous, rather than conspicuous, consumption is desirable—generally in situations where a person wishes to signal differing identities to differing groups (as when, for example, criminals want to identify themselves to other criminals but not to society at large). By contrast, groups that want to flaunt outsider status (e.g., punk rockers) will adopt conspicuous behaviors or attire (e.g., a mohawk haircut) that they know will deter imitators.

The authors consider five potential areas of application for their model: the market for identity goods, innovation, advertising, social norms, and politics. For identity goods, the model offers a useful explanation of taste dynamics; the model also predicts that demand changes faster for identity goods, which people choose to consume for extrinsic, rather than intrinsic, reasons. Because innovation shares in the cyclical nature of fashion, the model can shed light on sequential product innovation and product introduction. In the area of advertising, the model reveals the tension between the goals of companies, which want to sell as many products as possible, and early adoptors, who, in their role as insiders, tend to want to restrict adoption.

Because adoption of social norms or political positions are a form of consumption, the model is also relevant in these spheres. It suggests that people adhere to costly social norms in order to differentiate themselves from outsiders. However, new norms can be established if enough insiders adopt them. In politics, the model can illuminate which issues may become popular among voters during political campaigns and which ones may stimulate or discourage voter discussion.

Jonah Berger is James G. Campbell Assistant Professor of Marketing, The Wharton School, University of Pennsylvania. Benjamin Ho Assistant is Professor of Economics, Johnson School of Management, Cornell University. Yogesh Joshi is Assistant Professor of Marketing, Robert Smith School of Business,University of Maryland.

Acknowledgments

The authors thank Chip Heath, Ori Heffetz, Roland Benabou, Kirabo Jackson, Talia Bar, and participants in the BEDR and TWIPS seminar at Cornell University for their comments on earlier versions of this manuscript.

Related links

Building the B[r]and: Understanding How Social Media Drives Consumer Engagement and Sales
Yogesh V. Joshi , Liye Ma, William M. Rand, and Louiqa Raschid (2013) [Report]

Insider or Imitator: Consumer Identity and Product Trends (2011) [Article]

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