Sebastian-Raul, PAVEL ANR: 403400
Change, Consumption and Social Environment
While economics is about how people make choices, Sociology is about how they don't have any choice to make. Bertrand Russell
Abstract: Consumption is part of the individual social choice. Rather than pursuing just a constant maximization of utility, the behaviour of the consumer is bended toward self-image and self-actualization. Observing such a behavior, one finds nothing about the consumer's needs, only about the consumer's practical choices. If choices are not expressing a complete set of preferences or needs, we must ask ourselves on what grounds is the agent making choices. This paper investigates the interaction between market and consumer.
The topic of my paper can be easily resumed by this quote from Pierre Bourdieu's The Social Structures of the Economy:
Only a very particular form of ethnocentrism, which assumes the guise of universalism, can lead us to credit economic agents universally with the aptitude for rational economic behavior, thereby making disappear the question of the economic and cultural conditions in which this aptitude (here elevated into a norm) is acquired, and the question of what action is indispensable if these conditions are to be universalized. [2005, 5]
When he wrote this, Bourdieu referred to an economic sociological study on economic behaviour in Algeria, where he found out that the community he studied, the Kabyles, thought that work is a social occupation, not an economic activity1. We cannot explain this difference by relying on a divide in rationality, but as a distinct value (cultural utility, non-economic motivation) transmitted through history. As for the French sociologist, my focus will be to discuss about the motivational aspects of the economic behaviour, relating to concepts of economic thought in their interaction with the much wider social reality (the social area of
evidence): “the social dimension of the consumer must recover a more refined and articulated place in the motivational structure of consumer decision procedures.” [Bianchi, 1998, 8]
Consumption, in economics, is the use of goods and services by households; consumption expenditure, a distinct facet of it, is the purchase of goods and services for households. Both of them are important factors to be considered in macroeconomics because aggregate consumption directly affects aggregate savings – responsible for the production of a national supply of capital - the total of what is not expended from one’s income. The necessity of discussing such a topic manifests itself because consumption is at the heart of the economic account of practical rationality. It expresses choices and decisions, intentions and plans, and sometimes can define the motivation for outcomes. We will try to give a general picture of consumption by using psychological, economical and philosophical inquiries. A central premise of this paper is that the consumer's maximizing behaviour is not a constant capacity throughout time and we will try to specifically discuss how our reasoning is adapting and takes into consideration choices that never existed before, while discarding and replacing old preferences and tastes2. “Consumers do not follow any consistent maximizing behaviour, but rather an adaptive pattern of choice” [Gulaerzi, 1998, pp. 48-49]. A subsequent question is about how technical change and product innovation translates into consumers decision procedures and how consumers subjectively channel these changes so as to modify their tastes and preferences [Bianchi, 1998, 10]. My thesis is indirectly sustained by the findings of Tversky and Kahneman (1986) on the framing effect in decision theory, Herbert Simon's notion of satisficing and bounded rationality (1955), but also by the Allais (1953) and Ellseberg (1961) paradoxes of preferences that violate expected utility theory. The fundamental assumption of preference invariance was challenged from the inside of economic theory. My own interest is in furthering such a critique of invariability, while emphasizing the determinative nature of our social and commercial surroundings.
A fundamental question can be posed: why people consume more than they gain? John Maynard Keynes assumed the principle of not consuming more than you gain as an implicit psychological rule, and somewhat less strongly, that a part of the income is saved as the income increases3. As we have seen in the recent economic crisis, this was an overstatement. But what
2 “The evidence of grave deficiencies in taste prediction appears to pose a significant challenge to many applicationsof the rational-agent model”[Kahneman, 2003, 165]
changed since then? Well, it is all about new products that flooded the market, as vacuum cleaners, radios, TV's, computers, better cars, luxury products etc. and changed the definition of what comfort meant[Cashman, 1989], thus exposing the agent to new possibilities of choice and preferences4. As consequence, we may assume that consumption is not a stable function to be observed independently from the cultural aspects of a certain period of time, otherwise preferences for old products would have not disappeared in short spans of time (the transition form rock'n'roll to pop was made in less than a generation, including the array of cultural products that represented them, from the James Dean hairstyle to Andy Warhol). An unchanged set of preferences is a break in the cycle of capitalist innovative production, where new products are sent into the market to replace the old ones (novelty, surprise and discovery seem to be beyond economic inquiry, but there is more to learn from them in capturing consumers’ desires). Consumption is not just about demand, but also about creating products that can materialize almost invariant values (i.e. the fashion industry survive because there is such a value called beauty, transgressive over time, with a morphotic content, but also some invariable elements5 -i.e. the novelty of its designs). Even if we assume that this cycle is maintained only by the limited lifetime/warranty of the products, we cannot explain why they are not replaced with the same products and a new product is selected. An answer to this is given by Bianchi [1998, 2] : novelty and surprise “are among the variables which, by generating changes in the stimulus potential of a specific situation, are also responsible for how pleasurable, interesting and rewarding the situation is perceived to be”. Utility functions can be attributed to the hedonic content of new products, content which is relegated to the existing set of preferences. But in the same time we can ask ourselves if an invariable set of preferences is not damaging the utility
4 We must question ourselves (though this is not the proper time or place) about the rationale behind the increasing in numbers of products thrown on the market, while a gap between rich and poor is constantly forming since the '70, thus limiting the buying power of the majority (the middle class is drawn towards the lower strata of income, not the higher). According to the U.S Census Bureau study for 2009 (available at :http://www.census.gov/hhes/www/poverty/data/incpovhlth/2009/index.html ), in North America, the poorest 20% receive 3,4% of GDI, while the richest 20% receive more than 50,3%. The richest 10% own 71,5% from the national treasure, while the rest of 90% own only 28,5%. The richest 1% own 33,8%, while 50%, half of the population(!) own 2,5%. It is not strange, then, to wonder how much really sovereign choice, according to endogenous preferences is and how much is emulation of reference groups (the next highest income groups). 5 I would speculate that values are similar in structure to the Aristotelian concept of non-coincidental homonym
potential of the consumption. If we think of a prize space in which old and new products (with the same value margin) are the possible outcomes, would the consumer stick with his/her present preferences, or would he be interested in “risking” for a new product? If we were to offer a new product (i.e. an iPod touch) and an old one, but more expensive (i.e. a golden watch), as prizes in a lottery, it wouldn't be certain which will be chosen by the agent. For knowing the result, we should have different lotteries based on age, sex, education, place of birth etc. In the end, all this would reveal us less homogeneity in the structure of utility, and more variables related to social and cultural dimensions. If the novelty is perceived as a sharp disjunction between actual and already experienced events, the agent sees it as distressing and threatening; a low degree of novelty, being “repetitive and unchallenging, is also perceived as unpleasant”; but if the degree of novelty is inducing a pleasure that rivals with the previous situations, the agent perceives it as desirable [1998, 2]. Another possible answer is given by Georgescu-Roegen: “the fundamental theoretical advance [...] is that consumption choice is better understood by shifting attention from the satisfaction of a single want, utility, to a series of distinct wants, which are met sequentially and by distinct commodities”[Gualerzi, 1998, 48, emphasis added]. An equilibrium point is hard to be found, thus increasing the difficulty of assessing the variations (exogenous and endogenous) to which the agent might respond to.
A full definition of the properties of the product requires an appreciation of the relationship between its objective characteristics, both technical and formal, and the inseparably aesthetic and ethical patterns of the habitus that structures the perception and appreciation of it. It is this which defines the real demand with which producers have to
contend. [Bourdieu, 2005, 22]
We will have to deal with two things: we must find out if the ordering of preferences -mental states - is paired with an equivalent ordering of values - non--mental6 as in generated by something else than the agent - (the highest ranked preference is also the highest ranked value),
or if value is a distinct form of preference ordering and if it can be used as a variable that can be computed in the mathematical functions of consumer choice. It is all about investigating how preferences are influenced by personal and social valuing. Adds like “just do it” - Nike, “life's good” - LG, “like no other” - Sony, “I am what I am” - Reebok, are not just simple catchphrases, slogans easy to remember, but values that are attached to their brands and public presence. A true economics of the signs, where transactions are negotiated, searched and controlled, relating to trust, commitment, competence and credibility; it defines a social space in the heart of economics. When the slogan superpose on individual values, then a tendency of recognizing that particular brand (provides a standardized meaning and this allows consumers to do away with specialized external consultancy for ascertaining uses and quality) as close to the self-image7 is born. The process can be also reversed, when the values expressed by those slogans are compressed social values that can determine a yet unformed personal set: the amount of knowledge one has directly influences the completeness and the ordering of the preferences set. A poorly educated agent has a much more limited preference set and evaluating values of it than an educated peer (a consequence of this discrepancy is the ways in which the agent is forming his/her preference set, through education or by any means available in day-to-day life. The social strata in which the agent is positioned exposes thus the agent to various influences. A Western-European agent will have a complete different preference set than an Eastern-Western-European and a different way of acquiring it.). The idea of success, almost a moral imperative in our days, goes hand in hand with the economic system and the principle of individual agency - rooted in the Cartesian universalism of reason [Nelson, 1993]. The point I try to make is that the individual choice is less bent on formal rational reasoning when the context is not construed in such a way to transform the agent's choice in an important choice over the future. The goals of the consumer can be sequential, never in a state of completeness as long as innovation can always alter the actual set of preferences, diverting attention and awareness, and thus disclosing new opportunities. Buying a pair of shoes is not going to change the agent's overall life, but it will enforce and empower his/her self-image and self-esteem, while rallying his social positioning at a higher status, one where a new feasibility set can appear. Underpinning such a position is the assumption that rationality is a much wider and complex process than just being able to
reasonable justify one's actions and beliefs and to guarantee consistency between them. Psychological variables as anxiety, pleasure, fear, anguish etc. are able to impose on decision making without being irrational:
I conceive rational persons not as constantly reasoning, or as always selfconsciously logical, in arriving at beliefs but rather as having in some sense
internalized rational standards which then guide them without the conscious thoughts one might cite in explicitly rationalizing their behavior. This is not to deny that rational persons must be capable of reasoning; the point is that reasoning is not the only manifestation of our rationality nor a constant element in the formation of our beliefs.
[Audi, 2002, 33]
information processors, we cannot ignore the shade it casts on the economic ability of foreseeing market interactions.
What is important to keep in mind now is that as abundance and income rose over time, a sense of security over toned the uncertainty of the future. Failsafe devices were created, as credit loans, mortgages and other financial devices, but as the abundance grew, the mechanism meant to protect the agent from bankruptcy became a mechanism for increasing demand, and thus, production. This vicious circle defined and restricted preferences and goals over time. A child in college or the sudden death of someone close is a hard strain over one’s possibilities. These occurrences are defining consumption over time much more precisely than the placement of new products. An analogous movement pairs up with the risks of life by creating new preferences and goals over time. This is what I call morphogenesis of preferences. In more clear terms, is about the variability of preferences over time. This variability is explained by a sort of interactionist assumption over the agent's behavior, which argues that the agent is much more sensible to trends and embedded social value rather than pure individual choice8. The paradox we want to investigate is if these trends are formed due to social exposure (where x chooses y because a, b, c choose y), or do they represent an aggregation of individual choices (x chooses y, a chooses y, b chooses y, c chooses y ...n+1 chose y.). The matter is of asserting the generative attribute of social choice and publicity in detriment to personal private choice. The emphasis stands in the belief that a private choice is caused by personal practical reasoning when one is able to discern between the merits of the products and the demagogy of advertising9: “the person reacts to the way in which options are presented, and not simply to their substantive content” [Elster, 1985, 5] We have to keep in mind that “models of free individual choice are not adequate to analyze behavior fraught with issues of dependence, interdependence, tradition and power” [Ferber&Nelson, 1993, 6].
8 “But the consumer as producer is also engaged in a process of discovery, in being able to detect as well as to create new and favorable options. Hough market goods may already exist as inputs in consumption; still the output (or outcome) is not inscribed in them once for all, but is the result of multiple, as yet unknown, combinatory consumption possibilities. […] Consuming therefore implies also the production of novelty, the creation of opportunities for consumption to happen.” [Bianchi, 1998, 4]
want to challenge this view. If we think of publicity, it would be naïve to think of it only as the publicizing of choice or product awareness, without admitting that its scopes are less directed towards the agent’s use of rationality and more to his pocket. In the same time, economists are trying to think of the agent as a rational being, even if he is convinced by not so reasonable marketing campaigns. In his head, everything must make sense, they seem to say. Beliefs are easy to change in less educated minds. In other words, the positivist approach to consumer behavior is not capable to give a complex enough account of it. Because of this, it was often viewed and criticized as reductionist.
same kind or diverse (ignoring new qualities or, expecting more). A large and ever-increasing space of choices is requiring a bigger set of preferences or a bigger generalization of properties. Is the agent able to keep track to all of them, and in the same time to justify them? This question should not arise difficulties as long as we still keep in mind that not the cause of the choice is important, but its positioning in the rationality of the agent. We do not ask why the agent chose that product and not the other one 10(increasingly difficult when the products share a standard of
quality). We only ask if his utility requirements and preference ordering are satisfied by his choice (conversely, if the product is able to represent one’s preferences).
There is a distinction between buying a product and a much more complex decision as to what college to follow. In the former, the factors that accompany our choice are mostly external and sensible: the recognition of the product, the repetition of its publicity, the type of attention we have, the perceptive openness to the stimuli etc11. In the latter case, things are differently
perceived, in favor of the more psychological approach. In the first place, the importance of the decision may mark the rest of the agent’s life. Because of this, the anxiety that may appear can influence the decision. Every set of beliefs has its own relevance to the projected or desired outcome. To hold the belief that a brand of shoes is better than another one is not the same with holding the belief that Cambridge is better than Stanford. It is not about a constant preference, “what I think it is best for me”. We must ascertain that there is nonlinearity12that fundamentally defines one’s decisions, and content of beliefs. When the decision to choose between Cambridge and Stanford arrives, to implement the decision requires a comparative assessment of both Universities and in the same time the actualization of preferences and beliefs of the agent according to the process significance and “subject capabilities” [Sen, 1985]. Briefly put, the input (preferences, beliefs) is also influenced by the probability of the output (the decision in itself, the projected outcome plus the anxiety of the unknown) and the uncertainty of the outcome is producing a psychological state of anxiety which influences many decisions due to the desire to shorten that anxiety [Caplin&Leahy, 2005, 56].
10But it is a good question, because there are products that can be easily recognized in a bundle of goods. In the same time, there are many types of products: generic products – the core of the main market, basic goods; expected products –the generic attributes of the product plus the minimum expectations of it, like price, delivery etc; augmented products – the generic and expected attributes plus the attributes needed to differentiate the product from other products, like bonuses, free gifts etc; potential products – everything above plus, plus… [ Statt, 1997, p. 27]
11 Ibidem, pp. 47-49.
The Input/Output relation refers to communication between an information processing system and the outside world. From a cognitivist point of view, we would not be mistaken in asserting the information processing system as the rational agent, able to distinguish between stimuli and to offer a response. Some basic representations of the I/O relation would be:
a) I ---> O, an input (I) is determining a response/outcome (O);
b) I---> O ---> I', a response (O) to a previous input (I) is determining a new input (I'); c) Iⁿ <=> Oⁿ, every input (I¹, I², I³...Iⁿ) is determining an output (O¹, O², O³...Oⁿ) and vice versa.
To express the relation between goods and consumer, while acknowledging the change variable in time and the agent's susceptibility to new informations, we will use the I/O notation for the following example: John finds out that there are two more scholarships for Cambridge. He decides to give it a try since he just finished his bachelor degree and has not decided yet on a university, even if he applied to a few of them. Also, receiving some money would be nice, since he wouldn't have to get a loan, even if his parents could support him. After sending the required paperwork he starts to think that if he gets accepted (which is quite probable thanks to his good grades and recommendations), Cambridge would be a very nice place to study, also considering that most of his acquaintances recommended him to go there because of the family tradition, but of which he did not really cared. And so, he grows impatient for an answer from the university. Now, he wants to get accepted, and imagines himself walking on the corridors of the university.
[I ---> O] is changed over time to {F (t) [I + P (O)]} ---> (O’)
reasoning structure of the agent13. This case is possible for changes over time, when the preference set is not complete and where new factors might shift the feasibility of the choice to the desirability of it due to affective mental states with which the agent was not concerned at the beginning, or the discovery of new grounds14 while explaining the initial beliefs. The concrete implication of this is that the agent is not having full sovereign control over his/her decision. The deliberation of the agent is concerned with a form of relief from the accumulated tension. One of these forms of relief can be shortening the decision duration or delegating the decision to someone else, or to renounce altogether to it. A pattern is difficult to protract as long as extra-economic factors are determining the type of behaviour/preferences. Only when the good is desired, it becomes valuable for the agent, thus implying that there is a distinct subjective evaluation from the objective qualities of the object. In this sense, motivation is not about an efficient pursuit of utility, but a drive to satisfy certain identity needs (self-actualization, as in Maslow's pyramid, being at the top). This points out to the consumer as an active individual with a directed behaviour towards needs satisfaction.
Individuals, however, pursue the realization of identity with respect to a
constantly changing world of commodities and the evolution of consumption alternatives which that entails. In turn, this evolution is fed by the increasing sophistication of wants above and beyond subsistence, which follows from the income growth, and by the increasing refinement of the notion of individuality and social identity. Individuals strive for identification within the social structure, bending towards their private aims the system of commodities which at least partly develops along the path of change dictated by industrial transformation. [Gualerzi, 1998, 54, emphasis added]
13“We argue that the incorporation of anxiety into asset pricing models may help explain both the equity premium puzzle and the risk-free rate puzzle. Safe assets, by providing secure returns, may reduce anxiety even before final consumption takes place. They therefore provide an extra benefit in addition to the smoothing of final consumption across states, serving to reduce the risk-free rate. Stocks and other risky assets, however, by increasing the variance of the portfolio, tend to increase anxiety in the period before final consumption takes place. Hence owning stocks involves an extra cost in addition to increasing the variance of final consumption, which increases their required return.” [Caplin&Leahy, 2001, 56]
There are two simple ways to determine what the inhabitants of a poor neighborhood want: you can analyze what the buy, by aggregating every choice, knowing their income and determining patterns or you can just go into the suburbs.
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