Let’s say you’re on a first date and anxious to make a good impression. The waiter arrives with the wine list and your date asks you to order a bottle for the two of you. You know virtually nothing about wine, but you don’t want to look like an idiot or a cheapskate, so you quickly scan the list and point to the most expensive bottle on the menu.
“Ah, the Chateau Merlot,” booms the waiter, with a big smile. “Very good, sir.”
Yes, it’s ridiculous to spend $100 on wine that’s only marginally more tasty than a $20 bottle, but it’s actually standard human behavior. More than 100 years ago, an American economist named Thorstein Veblen coined the phrase “conspicuous consumption” to describe this very thing. You pick the expensive bottle of wine not because it’s five times better than the cheaper bottle, but because you want to send a signal to your date: “I have good taste and I can afford it.”
Wine is just one example of what’s known as a “Veblen good,” named for any good or service that defies the standard relationship between price and demand. When price goes up, demand is supposed to go down,” explains Ori Heffetz, an economics professor at Cornell University’s SC Johnson Graduate School of Management. But for Veblen goods like wine, fine art, jewelry and cars, the rules change.
“The high price is actually part of the attractiveness,” says Heffetz.
Read more about how Wine, Art and Diamonds Defy the Laws of Economics o the How Stuff Works website HERE