Popular Culture and Peer Effects in Consumption

Abstract

People are not living in isolation and they are largely affected by the people around themselves. People's consumption decisions are also influenced by the decisions and actions of their peers, what is called “consumption peer effects.” In the last decades there have been two major changes in the social and economic life that has affected masses: the internet revolution and the rise in inequality. Consequently, peer effects have become more important in consumption decisions and so has been its aggregate impact. This chapter provides a survey on consumption peer effects and its economic consequences by relying on recent empirical findings. It starts with a discussion on peer effects and conspicuous consumption, why and how comparisons are made, and how culture affects peer effects. Following is a discussion on the recent changes in the popular culture, their effect on peer effects and the resulting consequences. The chapter concludes with some policy recommendations.