Prestige Goods and Social Status in Virtual Worlds

We study the effect of conspicuous consumption on social status in an online virtual world. Based on previous literature, we hypothesize that purchases of rare items can confer higher social status. We test this effect at the German Habbo Hotel, an online social network with more than 1.5 million registered users. Using propensity scoring algorithm, we separate the selection effect (e.g., more active/attractive players buy prestige goods) from the treatment effect (e.g., buying prestige goods increases social status). Our results indicate a significant and large effect of conspicuous consumption on status improvement. A subject who is conspicuously consuming wins on average 13.2 friends while his matching twin wins only 5.1 friends over the same time period. This seems consistent with the notion that conspicuous consumption can be seen as an investment in social status.

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