Russ Roberts

Hanson on Signalling

EconTalk Episode with Robin Hanson
Hosted by Russ Roberts
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Robin Hanson of George Mason University talks about the phenomenon of signalling--the ways people spend resources to convey information about ourselves to others. It begins with Hanson revisiting his theory from an earlier podcast that we spend too much on medicine because we need to signal our concern for friends and family. The conversation then moves onto apply Hanson's model of signalling to other areas of human behavior. This is a wide-ranging discussion covering not just medicine, but real estate transactions, the wooing of a spouse, the role of education in the job market, parenting, the economics of self-deception, and Robin's argument that we spend too much time on admirable activities.

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0:36Intro. Signalling: people spend resources to convey information about themselves to others. Health care: doctors have incentives that may not lead to the best outcomes. Compare to auto mechanics or plumbers, complex systems, have tools and specialized knowledge; have to judge if they are trying to get you to do more than you want. Often blame the plumber or mechanic, but we don't treat doctors that way. We are quite unwilling to blame doctors if we go the doctor and get worse. Doctors' self-interest may be to protect themselves from lawsuits; may be pecuniary. Collect a lot of puzzles and try to find theory that explains all of them as opposed to explaining one puzzle at a time. Doctors probably wash their hands less frequently than they should, but we don't ask doctors if they washed their hands when they don't wash their hands in front of us. Mechanics often ask if you want the used part--nice gesture. Websites now have track records, data on doctors and hospitals. People don't want to think about if their doctor may not be the best. Difficult to measure with doctors, easier with hospitals. Medicine's different--we have emotional beliefs that keep us from doing the best thing for ourselves. Wanting high quality doctors is not the same as wanting doctors with good track records. Innovation: stock of old established treatments. Most of the old treatments are a bad idea; we only keep the ideas that work out. For any different treatment, the hospital that does it more often has the better track record. But on average large hospitals are not better for you because large hospitals do things that small hospitals don't do at all. Resist the newest thing. Social status for having the latest thing, latest doctor. We get too much as often as we get too little; on the margin no correlation between the information we get and our health.
9:50Cultural theory of why we waste money on medicine. We evolved habits to signal associates that we are available to them. When someone is sick it's not a good time to signal them; caring for someone who is ill is a signal of allegiance. Defended in earlier podcast. Application to doctors: People don't seem to be interested in statistics on auto mechanics or plumbers either. Most people rely on word of mouth rather than statistical systems, or first impressions when person gives them an initial estimate. Evaluation services are not thriving. Medicine is weird; everything is weird compared to our simplest theories of what people should be doing; medicine is just weirder. A lot of noise in the data: hard to perceive who is a quality mechanic, so rules of thumb work better. Are there grounds to rely on data for doctors? If we had no other theory to go on we would say that. How about real estate agents, who get 6%? Buyer's agent gets more the more you pay for your house--wrong incentive. Look overall at human behavior; look at tiger, makes sense mostly, true for most animals; look at people from a bird's eye view, see them doing all these strange things, random conversations about abstract things, have parties, go on long hikes--nothing to do with eating, reproducing. Signalling. Our lack of zeal in evaluating our doctors is a burden we carry with us from our evolutionary past.
17:46Our ancestors' world was largely other people in the same tribe. Main environment was shifting coalitions within the tribe. Present yourself as someone you wouldn't want to cross and try to infer who would make a desirable ally: ability and loyalty. Signalling behavior: try to present ourselves in the best light. Wouldn't select for those good at discerning who is lying? Amount of care you do is not just the amount that would be useful but the amount that signals that you care. Signalling explains over-amount of activity. Hospital visits are comforting, not so relevant to your care. Signals relevant of quality. On Valentine's Day you buy chocolates, not relevant for hunger; send signal about how much you care. Quality, brand. If the best chocolate is the cheapest, you might not buy it if the receiver doesn't know it's the best. Common signals of quality matter, not private signals of quality. Most of us are conscious at times of doing something for appearance's sake: nicer suit, better car--we segregate this as a minor part of our lives, special events. Counter-signalling--jeans by .dot executives. Actions we take are driven by huge complicated subconscious machinery to make us look good. Kids honestly love the board games they win; honest and sincere feeling to like what we do well at or look good at. Bridge-playing example. Sincere activities are driven by inherited signalling behavior.
27:30Test: taking Sunday NY Times crossword puzzle to game while son is not up at bat and filling it in in pen is a kind of showing off. We also do things alone; sometimes talk about them to others. Charitable giving gives us a warm glow and others think well of us. Some people give in secret to try to convince themselves that it is not to show off, but not very vigilant about keeping it secret. Why are there any anonymous gifts? Someone could still see you doing something good. Called a cynical point of view. Suggests everything that appears to be selfless or kind has an ulterior motive. But it could be a higher motive rather than a lower motive. Salesperson pretends to be your friend but really sells you a piece of junk. You don't want to say to someone who visits you in the hospital, "Thanks, but I know you are only doing it to signal me." Projecting of low motives is the wisdom of the old and jaded, the standard established view. Cynical view is not supposed to be voiced prominently. Have to ask: what's the motive of the cynic? Idealistic cynic vs. cynical cynic. Scorsese, "No Direction Home," Bob Dylan life, sanitized, get a little bit of disillusionment about Dylan as an artiste. In the documentary he comes across as somewhat opportunistic imitator of Woody Guthrie rather than political motives. Textbooks, public documents paint idealistic picture. We are susceptible to those claims when they are merely claims. Political rhetoric, claims to care about groups.
37:44Waterproofer touts the fancy $30,000 system to waterproof the basement; why don't people treat politicians with the same skepticism? Like to separate the world into good people and bad people. Propaganda against the enemy. We think we are good, in part because we look inside ourselves and see high motives, not low motives. Don't see yourself very clearly. Murderer sees himself as good, high self-esteem. We don't think of ourselves as consciously choosing to talk to based on who can be most useful to them. EconTalk may get Hanson ahead.
41:20Parenting. Want to see job as parent to help children become fully realized and to achieve their potential. Want them to be a little bit cynical because you don't want them to be prey. Balance. We like to teach our children to be more idealistic than we are. When they get older they are not as interested in our insights: we want them to keep naive innocence. When they want to become an artist, too far. We disagree with our children and we sincerely think we have their best interests at heart. We don't realize the other motives going on behind our behavior. Tell child not to run out in the street. Child wants to play the drums, parent convinced it's not his best skill. Loud drum playing might reduce sleep; might not impress parents' friends. Interests diverge a little. Even moderate divergence of interest can create a wedge in ability to communicate. What marks status, what indicates status? One key indicator is control, dominance. Suggests that the best way to show your dominance is to take people to a lousy restaurant. Competition among people should eliminate some of these forces. People have to adjust their dominance signals to the level they can get away with.
49:50Education as signalling: claim that it doesn't help you become better at your job; merely is a way of informing employers about your quality as a potential worker. Mixture of functions, other components. We adjust our behavior in school to look as good as we can. The signalling part of school is a hurdle to jump. Some areas you might see a closer relationship between what is taught in school and what skills are used in job. Is there a cheaper way to convey my quality to a potential employer? College is very expensive; suggests that signalling is not all of it. Most people do not bring bank statements or doctor reports on a date, though those documents would demonstrate wealth and health. Instead we engage in inefficient signals. Difficulty of changing ancient habits.
55:56Unease with monetary aspects of life. Non-market, non-capitalist motives viewed as superior by most people. Dinner at friend's house: bring $100 bill instead of the wine. What would you think of somebody who did that? If someone did something different, what would you infer? Why wouldn't I think more of someone who brought a $100 bill? Kind of relationship you think we have if you bring cash is what is being signalled. Maid is paid in cash. Long term debt: we like people to be in our debt. Short term vs. long term allegiance. Long term allegiance has to be about large debts, annual feast. Paying off immediately signals something about your intentions for the long term. But wine would be an immediate payoff, too. Why did bring a gift that complements the meal become a custom? Could offer after dinner to fix the person's toilet that you've noticed was running.
1:02:15Imperfect information in the world. We want to convey information to cope with that. Ramifications beyond the immediate. A lot of people, though, think that signalling is wasteful and something should be done about it. Maybe there are better ways. Maybe the information is not so imperfect. Date is different from relationship with an employer. Market opportunities may emerge for showing employer those signalling kinds of information. In history of economics first papers were on education and insurance, moral hazard. Previously Adam Smith in the Theory of Moral Sentiments. Primary examples of excess signalling, but they may not be the best examples of signalling. Some market failure relative to world where we all know everything. Does that mean there is a scope for government regulation? Might just be the best we can do. Tax or discourage these activities, but realistically that will increase the noise in the signal. Expensive to court a mate; if you taxed it you'd reduce the activity but is that better? Parents choosing mates also didn't necessarily work, though that entailed signalling by the parents. Admirable activities, signal good characteristics, people do too much of it. Government could tax and discourage the admirable activities; but in fact governments do the opposite, encouraging the admirable activities. Aren't those admirable things areas that also provide positive externalities, so we wouldn't do enough of them? Research example. Communities like to look impressive to other communities, so signal by supporting arts, sports stadiums. Power politics, special interests. Subsidize farmers, perhaps because they are viewed as admirable
1:11:49How can I use these insights to lead a better life, more profitable life, more honest life? If you want to understand the world, this is essential. Will it make me think better of myself? Theory suggests you are more base than you think. Should make me a wiser consumer. Could cut back on medicine, but then family will think I don't care about them. Limited options. Do we really want our children or ourselves to see everyone as self-interested? As social scientists it's a useful understanding of the world, but we like to think our spouses actually are kind. Religion. Essence of signal is self-deception. Part of the ability to be noble.
1:15:37Hayek quote, from The Fatal Conceit. We have to have a certain schizophrenia in how we look at signalling. Truth-seeking, Descartes. Wouldn't we be better sometimes if we lived with the illusions? Evolutionary heritage, healthy relationships may require some of these illusions. May be illusory that we as scholars are seeking truth, even that is possibly just for glory. Key question: why did economics take so long? We understood the nature of stars and the wind on the oceans before we understood basic things about social interactions. The illusions were precious to us. There may be things we don't want to know. Scalping podcast, game sold out, so scalper says; son laughs knowing that scalper had an incentive to deceive. But want siblings to see each other as honorable. Should we overcome all our biases? Paul Graham essay. Look at costs and benefits. Ancient situations like parent/child, spouses, are more likely to have ancient evolved senses of what to do. World policy, global warming, future of robots, basic nature of government are pretty far from ancient intuitions so we need some people to come to grips with the truth about them. Evolved intuitions are the least likely to be about right there. Create betting markets on important markets.

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COMMENTS (24 to date)
TGGP writes:

I noticed some Public Choice cynicism there and thought I'd point out this, which should make us more skeptical of it.

Jeff writes:

Terrific podcast!

Russ and/or Robin: Can you recommend some books that would be relevant to this conversaion?

Thanks!

Grayson Hill writes:

Another reason for anonymous giving is so you don't end up on mailing lists for non-profits. You may want to give - even give a great deal - but you may have only the resources or mind to give to a certain set of groups or causes.

Unit writes:

About the strange things we do, I guess classical economics would just say that people's utility functions are interdependent. It seems that Robin wants to go further and understand exactly how and when they're interdependent. Russ brought up the notion that it could be costly to signal and hence there might be a law of diminishing returns involved. Also Caplan's theory of rational signaling seems to apply here in trying to determine when is signaling (or not signaling) costly and when it isn't.

Brian-NJ writes:

Thanks guys, I really enjoyed this podcast. There was enough perspectives and differences to create a fine line, one of which I was able to deduce a third opinion. These are the discussions I enjoy the most, for that reason, it is the alternatives outside the discourse which manifest during or after the podcast that stimulate my mind, and is why I keep coming back for more econ talk!

Carol Ward writes:

A friend of mine referred me to your podcasts, and I have already sent him a thank you note. Now it is time to thank you. I felt like I was in grad school again, only better.
Great, and very thought provoking, podcast. In fact, I need to listen to parts of it again before attempting further comment.

Brad Hutchings writes:

Move over Munger... Hanson is my favorite EconTalk guest, at least until the next time Munger is on. Perhaps I'm just really cynical, but I don't think one has to be very cynical at all or lose any innocence to see signaling in everything, even at a young age.

There's a recurring joke on the Jim Rome radio show not just about the signaling value of a degree, but the comparative signaling value of a University of California degree versus a Cal State degree. There are millions of people in on that particular joke, who have to grasp the concept of signaling and comparative signaling for it to be funny, even if they don't use the word "signaling" to define the concept.

Despite the joking in the podcasts about exchanging IQ scores on a first date, I don't think in my adult life, I've left a first extended social interaction with anyone (date, business meeting with new client, etc.) without knowing what school they attended and degrees they received and probably making some judgement based on that. I've assumed the same kinds of judgements were made about me.

I take the view that signaling is pervasive and it doesn't make us bad people to notice it. I think the realization can make us more emotionally in-tune with others, better able to connect. I don't know how applicable the realization really is though. Cialdini's observations about human interaction are "applicable" to getting outcomes one desires. Signaling feels more like "the math" behind it. Robin sounds generally more focussed on signaling that involves expending resources (exception being showing up at the hospital when one is ill), but there are modes of signaling that are more like the right attention to detail (e.g. color coordinating decor or outfits) than choices of expending finite resources like money and time.

Color coordinating of outfits... I've got a friend who runs a sneaker show, where young adults show up to get the best, rarest sneakers, and matching so-called "urban" clothing. Bright colors, mixed up and matched well and in proportion, are important in that scene. Think pinks, yellows, light blues, reds. Pink laces are acceptable for straight males with the right shoes and coordinated with the right clothes. This friend has a 13-year old step son who he would buy some of these wild shoes for, but the kid is concerned his peers will think he's effeminate, so the kid sticks with blacks and greys rather than experiment with a unique style that a full color palette avails. My buddy also has a four-year old daughter who just had a birthday and we were all making sure to get the "right" princess for her. Cinderella, out. Ariel, out. Snow White, out. Sleeping Beauty, jackpot. Or maybe I got Cinderella and Sleeping Beauty mixed up. Go shopping for the right princess birthday present for a four year old and then tell me that signaling isn't ubiquitous!

Heather writes:

I'm not sure how I feel about this podcast. It was pretty out there and reduces people to emotionless creatures.

Ethnic Austrian writes:

It seems like the attempts to explain away altruism are getting increasingly complex and unsustainable.

What if the difference between giving a tip to the maid and giving gifts to friends is that the latter just isn't an economic transaction? Notice that we go out of our way to scratch the price tags off of gifts. It seems to me that we would like to establish relationships in which individual transactions just aren't evaluated.

The quest for truth as a form of signaling? Well, knowledge in a narrow field of expertise certainly doesn't make you popular in high school or at mixed cocktail parties. There is of course always somebody else that shares whatever obscure interest one might have. But to count this spurious evidence is a sign of an unfalsifiable and thus unsientific theory.

This is even more so the case at Hansons views on donations. Anonymous donations are difficult to explain away for altruism deniers. Hanson simply asserts that anonymous donors don't really want to be anonymous. Did he get that from that hilarious Curb Your Enthusiasm episode?

His theory on healthcare is so contrived that it is difficult to follow his train of thought.

Hanson doesn't explain why certain signals matter in the first place. Why should signaling altruism or truth seeking be important and not signaling recklessness and ignorance?
What about loners?

Another common fallacy in these kinds of hypothesis are monocausalism and post hoc ergo propter hoc. Just because a donation can be in your self-interest, doesn't mean that this was the dominant motivation or even a motivation at all.
Anything we do can potentially lead to a result that may be in our self interest. Using such potential effects as evidence is again a sign of an unfalsifiable theory.

And then there is Occam's razor. The theory that people actually care for each other, for truth, etc. seems to explain the data much better and with elegance as opposed to Hansons elaborate rationalizations.

I agree on the subject of dress codes.

IQ-Tests at dates? Interesting thought. Most people like to believe that they are above average. That can't be true. We also like to believe that we prefer intelligent partners. Probably not true either.
Physical fitness and health are only important as long as they contribute to physical attractiveness, which is obvious anyway. So no need for tests.
But there is certainly a lot of signaling going on in dating. But everybody knows that and we deliberately try to present ourselves in a better light. No dispute here.

A college education certainly signals certain qualities. But people also seriously believe that such an education is important and there is a huge industry out there to convince people that this is the case, as well as existing graduates who wouldn't be comfortable with the thought that their effort may have been in vain.

Alan writes:

After listening to this podcast, I was astonished again by the genius of Nietzsche.

Phil writes:

For interesting pieces on handwashing and also on continually seeking improvement in medical systems, check Better: A Surgeon's Notes on Performance by Atul Gawande, a Boston surgeon and writer. (Incidentally you might want to interview him for a future podcast).Of particular interest is his chapter comparing the results in various Cystic Fibrosis centers around the country and why some do so much better than others.

On signalling, consider what I've heard referred to in some cases as the "H bomb" where a woman tells her date she attended Harvard. In some cases this news is so devastating that it kills any possibility of relationship developing.

Also, there was a story in the NY Times a couple of years ago that reported on a study showing that Harvard MBAs did no better after a few years than people who had been accepted into the program but chose not to go. Does the MBA signal something, or does the ability to get it signal just as much?

Would having an econ degree from George Mason signal that one is an attractive potential mate, employee, etc? How would this degree compare with the signals sent about having attended Berkley, or a state school in South Dakota vs. a highly selective private school. And aren't these signal often not that one is highly educated, or even smart, but rather that someone comes from the right side of the tracks, social group, etc.?Would having read Hayek, Friedman, Schumpeter, Ricardo, and Smith signal these things?

Robin Hanson writes:

TGGP and Ethnic, I'd say that there is real altruism, and exactly because it exists we are eager to signal it and to infer it from signals. We really do care about our allies, and so do things to we show that we care.

Brad, yes of course we can signal by spending time and attention.

Heather, our emotions are important signals of our feelings. For example, anger can signal we are nearing the point of dramatic action

dcwilk writes:

Brad H.,

“[S]ignaling value of a University of California degree versus a Cal State degree.”

That’s funny, I did undergrad at UC and post grad at Cal State. Maybe I’m sending mixed sinals.

enronal writes:

Interviews with Robin are both fascinating and frustrating, which overall I take as a good thing. Fascinating because he gives tons of off-beat insights. Frustrating because, as Russ says, one's head starts swimming, and at the end, I have a hard time summing up and drawing conclusions. Still, lots of fun to listen to and Hanson comes across as having a truly quirky, original mind.

Alexis writes:

You say that doctors don't give you old parts the way that mechanics give you a bunch of ignition coils or whatever. But they do. Lots of people have a jar full of gallstones. By the way I suspect that ignition coils and so on need to be disposed of in an expensive way (unless you dump them on the customer). But perhaps I am just cynical.

Thomas A. Coss writes:

Your thoughts regarding signaling and healthcare is quite on target. Due to my training in Economics, I've always been troubled by the notion of professional altruism, in that there is always a pay-off, which, as a Critical Care RN, I saw all to often.

The practice of medicine is far less complex than the science

Consider a comparison square of two variables. Across the top of this square you have two conditions, Patient is getting better, and Patient is getting worse. Down the left side you have an additional two variables: You know what is going on, and You do not know what is going on. In the middle of this square you merge the opposing conditions and now you understand medicine.

In the first square you Know what is going on and the patient is getting better. This is good. Moving over the the right one square, you still know what is going on and the patient is getting worse. This is good as well, patients do get worse despite our knowledge of the condition, especially when suitable options are not available.

Moving down and back to the left you have the condition where you don't know what's going on but the patient is getting better anyway. This works because in the end the patient gets better and that is good. Moving to the right again you are in a condition where you don't know what's going on and the patient is getting worse. This isn't good and it is here that you call for a "consult" of a colleague.

That about wraps up the practice of medicine. All you have to do is listen to the patient and you're pretty safe.

Thanks for a great podcast.

Tom

Tal Galili writes:

hi.
I Wished to thank you for your great PodCast - Thank you !
I will have to listen to this podcast one more time before I could intelligently reply it.

Tal.

Ed writes:

Hanson seems to imply signaling is the answer to everything where it may not be. Still, interesting topic. I would like to hear about more signaling.

Ed

no signal writes:

My favorite line from the podcast was Roberts' "It's a ludicrous theory but Robin defends it well." I think my bias against signaling theory and its presumed evolutionary basis arises from my former enthrallment to Freudianism. I see a similar reductivist tendency resting on pseudo-scientific speculation. Many in the econoblogosphere seem to hold Hanson in awe. This podcast did more to elevate my respect for Roberts.

Aaron writes:

Isn't it obvious that a bottle of wine signals more than money would? If I bring you a bottle of wine, it signifies I'd like to drink with you, acts as a conversation starter, etc.

Also, better than money, a bottle wine could show my skill in choosing wine, what kind of money, I have etc.

It also seems like an equitable way to have a dinner party: you cook, I bring the booze.

Alex Douglas writes:

I love EconTalk and have recommended it to a number of people! This particular episode has stuck with me and has a lot of interesting implications--signalling is all around us, although I'm not so sure it's a bad thing. If our utility functions respond positively to people signalling affection, we might like to simply know their feelings already and save them the trouble of costly signals, but it's not feasible to try to re-write our own utility functions (and if we did so, we would be guided by a desire to maximize... what, exactly?)

I like Brad Hutchings' comment about judging friends by their degrees; dating may bypass expensive signalling in some cases. When it doesn't, there are other issues at hand. I don't want to know only that a potential fiance is smart, but also that he or she will pay attention to me; I don't want to know only that he or she is wealthy, but that he or she is willing to spend that money on me, and so on.

Dave writes:

Thanks for putting together another interesting podcast.

However, I feel that in this podcast you and your guest conflated self interest with selfishness. Self interest is merely the act of maximizing utility subject to constraints while selfishness is more narrowly defined as acting to maximize your own happiness at the expense of others. Selfish behavior is a subset of self interested behavior but they are not the same.

Consider the following utility function:

U1 = f(Goods,Services,Leisure,U2,U3)

Where
U1 = My Happiness
U2 = My Wife’s Happiness
U3 = My Child’s Happiness

In this model I might get up in the middle of the night to clam a crying baby. I’m not behaving in a way this inconsistent with my self interest so I’m not being “altruistic” in the most literal sense (ie behaving selflessly). Out of self interest I decrease one component in my utility function to increase 2 other components.

If the happiness of others can’t enter a utility function then I agree signaling become necessary to explain many observed behaviors but I feel this model explains the behavior with fewer assumptions.

This also resolves the issue about teaching your children to be skeptical of strangers but not of you or their siblings. The degree of confidence you have that your happiness really enters into another utility function informs you how skeptical you should be of another. You can be fairly confident that your parents value your happiness due to the amount of Goods, Services, and Leisure that they forgo to increase your happiness. You can’t say the same of the scalper at the baseball game.

I listened to this twice. Here's what I think:
o Very useful in pointing out that much of human behavior consists of signaling things about ourselves to others.
o Not so useful in trying to attribute all not clearly self-centered behavior as signaling and in concluding that signaling concern for others is always and actually a refined form of self-seeking behavior. Just because signaling and self seeking explains much doesn't imply that it explains all.
o This latter error seems to be based on a belief in evolution as the explanation for all behavior. Like much other evolution-philosophy masquerading as science, the evidence is really not there to support the claims.

P.S., I'm surprised that the driving of BMWs and wearing of Nike and other explanations for associating ourselves with premium brands did not come up. BMWs are just about as expensive as college educations. The point should also have been made that when the amount of wealth exceeds physical needs its either got to be devoted to signaling (or altruism).

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