Individuals engage in conspicuous consumption to signal
their income to their own reference groups, defined in a fine
manner by observable identifiers such as race, gender, education,
and occupation. The more income inequality within a reference
group, the less prior information concerning the income
of an individual, and hence the more effective the conspicuous
consumption signal. Therefore, within-group income inequality
causes substitution from non-conspicuous consumption to conspicuous
consumption. We find strong evidence supporting this
prediction regarding aggregate conspicuous consumption for all
income percentiles. Disaggregating into smaller consumption
categories, most consumption items categorized by the previous
literature as conspicuous and non-conspicuous using survey
methods agrees with this prediction as well