Friday, May 01, 2009
Advances in Signaling?
For example, companies could sell certain products only to consumers who have a certain minimum or maximum score on one or more of the certain Central Six [personality] traits. Hummer dealers could advertise that the "Party Animal Red Pearl" paint color is available only to customers who score in the top 5 percent for extraversion. Customers who want to display their unusually high extraversion through that bright red color would have to electronically validate their extraversion score at the dealership before they could sign the purchase agreement. In this way, Hummer could guarantee that Party Animal Red Pearl becomes a reliable signal of friendliness, self-confidence, and ambition. Or Lexus could sell the "Mensa Quartz Medallic" color of the LS 460 only to customers whose validated intelligence scores are high enough for them to join Mensa International (IQ 130+ or the top one in fifty). The more exclusive "Prometheus Glacier Pearl" color could indicate an IQ above 160 (the top one in thirty thousand) -- the qualification for joining the Prometheus Society.We already use purchases to signal something about ourselves to others (ask yourself why you have a logo on your shirt or hat or why companies spend so much trying to attach meaning to those logos), but these signals are weak because it is pretty low cost for other types to mimic the signal if they want to (e.g., if the benefits of mimicry are sufficiently high). By tying purchases to actual differences, the signal become more credible. As such, those seeking to distiguish themselves might be willing to pay higher prices. High prices may make restricting sales to only "qualified" people profitable. Thus, the system could persist as an equilibrium.
Cowen, though, thinks the idea is absurd, and it certainly feels weird, but is it really absurd?
This type of thing could also be used by firms in the hiring process. Instead of simply taking degrees/level of education at face value, firms could test all potential hires to determine their knowledge and ability level. I know that firms already to some testing of applicants, but I think they should probably test much more. It is unfortunate that people have to go to college and pay large sums of money for an 'education' that signals employers so they can get better jobs and make more money. Why not just ignore the degree (which by itself means nothing) and test all applicants on their knowledge?
If firms did that, then people would not feel forced to go to college and they would be free to study and learn on their own terms. There are innumerable resources available to people through books, video lessons, periodicals, etc., etc., and a person through their own hard work and ambition could get an excellent education. In fact, a person can do that today, but since they would lack an 'official' education their chances of getting a job are virtually null. (I am reminded of a line from Good Will Hunting about paying $150,000 for an education you could get in late charges at the public library.)
(I wish you could edit posts...)
Therefore, the idea of having qualifications for purchases could actually make good economic sense. take the case of the Lexus LS 460. Perhaps a man was interested in buying a Mercedes but Mercedes didn't have the distinction of the Mensa Club associated with any of there cars. Even if this man preferred the Mercedes simply from an automotive perspective ho would still be likely to buy the Lexus in order to distinguish himself, thus proving the economic and competitive value of qualifications.
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