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When Duke University professor Dan Ariely was given a Prada overnight bag as a gift, it felt kind of good. "I stood a little straighter and walked with a bit more swagger," he writes in his new book, The (Honest) Truth About Dishonesty. "I wondered what would happen if I wore Ferrari underwear. Would I feel more invigorated? More confident? More agile? Faster?"

Elevation, of self and status, is the promise of the luxury brand. And even those who aren't label slaves know that a beautiful and well-made piece of clothing feels different somehow. Whether it projects prosperity, or it simply feels good to look good, a shiny red Louboutin sole can reinvigorate the soul.

But what if the items are backalley purchases, glued and stapled knock-offs – do we then feel and act dodgy, too? Intrigued by his Prada experience, Ariely set out to determine if what we wear changes how we behave.

He and colleagues Francesca Gino of the University of North Carolina at Chapel Hill and Michael I. Norton of Harvard Business School had a group of female subjects take a series of tests while wearing Chloé sunglasses, informing them that they were either fake or real. Again and again, researchers found that those in the knockoff sunglasses were more prone to dishonesty and lying. In one test, subjects were asked to complete a math puzzle and grade themselves privately, knowing they'd be paid more for a higher score. Fully 70 percent of those in the fake glasses inflated their results, while 30 per cent of those in real glasses fudged.

In another study, subjects took a survey, ranking the ethical behaviour of others. Those in the fake glasses judged other people more harshly than those in the real glasses, perceiving high levels of dishonesty and cheating in others, as if their lenses were clouded with cynicism. Ariely suggests that the knockoffs informed the subjects'"self-signaling," the notion that we take cues about who we are from our own behaviour, like objective observers of ourselves. So if I'm the kind of person who fakes her sunglasses, then maybe I'm the kind of person who cheats for a little cash.

The psychological impact of knockoffs may be a new idea, but the economic impact is indisputable, and growing. Counterfeit and pirated products worldwide are valued at about $600 billion, according to the International Chamber of Commerce, and it's a black market linked to child labour, even terrorism.

Technology is producing better counterfeits than ever, which have new reach online. But in New York this spring, the old-fashioned street hustle was still obvious. A few years of government and industry crackdowns have made the fake trade slightly less visible, pushing it off legendary Canal Street, but the game is on in Chinatown. On a visit, a woman hissed at me: "Bags! Purses!" But when I turned, I couldn't see who had spoken. I lingered awhile, watching two young women, heads bowed in negotiation with a man, examining what appeared to be a brochure. The New York Times reports that this is the new method: A pamphlet provokes an order, and then a runner nabs the purse from a nearby stash. Local citizens will even rent out their closets for a little extra cash. A van sat nearby, and I waited to see if the back doors would fling open to a pile of shoes and T-shirts, like the guy who opens his raincoat to reveal a hundred watches. Because I was standing still, I attracted the drug-dealer whispers: "DVDs?" "Cologne?" A woman held up a jar of perfume. I passed.

The world of fakery feels sleazy, but fashion isn't always perfectly real. Entering a high-end store can feel inauthentic, too, with the glass cases, hushed tones and salespeople exuding Pretty Woman contempt.

In her seminal 2007 book Deluxe: How Luxury Lost its Luster, Dana Thomas visited factories in Guangzhou, China. There, some expensive brand-name bags are put together on the same assembly line as mass-market department- store brands. But in a Parisian suburb, Thomas saw an Hermès Kelly bag being hand-sewn with linen thread. This romantic idea of a beautiful, tenderly crafted item worth its sky-high cost is practically a thing of the past – certainly, a niche (and mostly European) practice.

Still, people will pay for the fantasy of luxury. A 2010 study published in the Journal of Experimental Social Psychology examined the idea that brand purchases are acts of conspicuous consumption – showy signs of success. Researchers discovered that those whose sense of self-worth is damaged are more inclined to make luxury purchases. It seems that many people shop brands to self-soothe and feel better. For that, they will pay as much as possible, which could be very little.

Katrina Onstad's new novel is Everybody Has Everything. Follow her on Twitter: @katrinaonstad.