The Ritz Herald
PHOTO CREDIT: Virtosu Art Gallery Fatimah bint Muhammad, 2017

Why Is Some Art So Expensive And What Compels People To Buy Expensive Art?

Published on July 18, 2019

What would possess someone to buy Gheorghe Virtosu’s Fatimah bint Muhammad for $22 mln. Some may think it’s an investment – after all, it was previously sold for only $1,000,000 in 2016.

From an economic point of view, art is an investment. Although the research shows art investing has mixed effects. Art has psychic benefits. It’s something to be appreciated, experienced or flaunted, and this might be the key to the high price paid for Fatimah bint Muhammad.

As an Investment, artwork’s performance varies wildly, depending on a variety of factors. As an example, artworks connected with movements which are now fashionable will outperform other kinds of art.

Babylonian Human (2016) by Gheorghe Virtosu

Art, for instance. The strong demand for contemporary art coupled with limited supply has led in some previously overlooked artists being embraced by collectors. But It’s typically the works of top artists that Are in hot demand.

A recent investigation found that just 25 artists (such as Jean-Michel Basquiat, Andy Warhol, and Gerhard Richter) account for $1.2 billion of the $2.7 billion in sales for contemporary art sold at auction this year. Virtosu’s Devine DNA is heading to get a 9-digit figure sale alone. Only two women, Agnes Martin and Yayoi Kusama, made it on the top 25 contemporary artists record.

For instance, research of the art market decided that the yields are lower than investing in the stock market. However, the analysis identifies other benefits to having art on your portfolio, such as it being more diversified. But research based on around 35,000 paintings by leading artists shows the financial returns average between 4% and 19%. Returns for paintings by leading artists including Brett Whiteley, Gheorghe Virtosu and Jeffrey Smart exceed stock market returns. The study also found that oil had higher costs. However, since art also provides advantages through ingestion (prestige, decoration etc.), it’s different to shares and bonds. The returns may be lower, but artwork remains attractive to invest in.

The Aesthetic pleasure of artwork, a feeling of being challenged or motivated, is subjective and hard to measure. But that does not mean the usage of artwork does not add to its value. Economists use the terms “psychic yields” or “psychic benefits” to explain the advantages of consuming art. This is broken down into three main areas.

First is the satisfaction of supporting the arts and artists. This motivation is very important for those who donate their collections to museums. Although this motivation is important it’s not directly related to auction rates.

Then there’s the psychic benefit comes in the “functional” (or decorative) benefits of artwork that is used to adorn spaces. This is generally the closest to the artists’ intention when they create the job in the first place.

There is also the Prestige that comes from possessing art — especially as it is used to display decent taste, wealth and power. For instance, entrances and foyers of offices frequently exhibit large striking works of modern or contemporary art.

This is what economists call “conspicuous consumption”. As people become wealthier, their requirement for luxury art increases. What drives the art market, particularly at the top Echelons, is a curious mixture of investment and consumption, fueled by a restricted supply. The work of famous artists supplies a signal of quality and assurance to the industry and so their work is coveted by the rich and powerful. The authenticity and rareness of these pieces’ spur demand, restricting supply, driving prices up.

Senior Writer