People would destroy their finance to buy goods, hoping to impress people. The term “Veblen Goods” is used by economists to describe goods whose demand increases as their prices rise, resulting in upward sloping demand curve instead of the more typical downward sloping demand curve. The idea was first explained by the American economist Thorstein Veblen in 1899 in his book “The Theory of the Leisure Class”. He put for that certain expensive goods are not purchased in spite of their high prices but because of their high prices. Veblen introduced the idea of conspicuous consumption: people specifically buy goods as status symbols. Seeking status becomes the incentive to spend for getting “trophy goods”. To cultivate this desire, the luxury industry limits the availability of creation products.

The Veblen effect is intricately connected with a series of fallacies:

  • The snob effect: expressed preference for goods because they are different from those commonly preferred; in other words, for consumers who want to use exclusive products, price is quality.
  • The common law of business balance: the low price of a good indicates that the producer may have compromised quality, that is, “you get what you pay for“.
  • The hot-hand fallacy: stock buyers have fallen prey to the fallacy that previous price increases suggest future price increases. Other rationales for buying a high-priced stock are that previous buyers who bid up the price are proof of the issue’s quality, or conversely, that an issue’s low price may be evidence of viability problems.