Conspicuous Consumption and Satisfaction Over the Life Cycle
Numerous studies have observed that people compare their relative positions in the consumption distribution within their reference group and signal their wealth to others by consuming highly observable goods. These in turn affect their well-being. One of the basic predictions of the signalling model of conspicuous-consumption is that an individual’s well-being or satisfaction should increase with an increase in his or her household’s ranking in the distribution of highly observable consumption within its reference group but should not be affected by increase in its ranking of highly unobservable consumption. While there is some empirical evidence in favour of this prediction for aggregate data, no attempt has yet been made to test this theory over the individual’s life cycle. This study attempts to fill this gap in the literature. Estimates using panel data from Household, Income and Labour Dynamics in Australia (HILDA) surveys for seven waves (2005-2011) do not support the predictions of the signalling model - even at the aggregate level. The predictions differ across the individuals’ life cycle and are found sensitive to the choice of the estimation methods used.