Refined tastes, coarse tastes: Solving the stratification-of-goods enigma

The “Stratification-of-Goods†expresses social ranking where the lower status group consumes almost exclusively coarse goods such as Rambo films while the upper status group consumes almost exclusively refined goods such as Shakespearean plays. The Stratification-of-Goods is an enigma for the social welfare function (SWF)—which also applies at the level of the individual utility function. It is an enigma because it makes SWF and individual utility function ill-defined: there is no single metric that allows us to compare the utility functions across groups, as well as the tastes across a single decision maker (DM), insofar as they are segregated by the refinement of taste. This paper proposes a model that promises to solve the Stratification-of-Goods Enigma. The model, consistent with rational choice theory, starts with DMs who have identical tastes but differ with respect to income level. If income inequality is non-trivial, DMs invest differently in what this paper calls “sophistication capital†—the education needed to appreciate refined goods. The difference in investment in sophistication capital sets in motion dynamics that generates hard-to-reverse status stratification. In this fashion, this paper offers a solid endogenous account that solves the Stratification-of-Goods Enigma.