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The Evolution of Signalling

Estee Lu explores how the term “signalling” has changed over time, transforming the goods we buy, our work ethics and, even, our dating lives.

The term “signalling” was introduced by Michael Spence in his analysis of the information gap between employers and workers. With workers’ innate productivity levels being unobservable, firms offer wages that reflect their beliefs about the average skill of workers in the market. Through signalling, skilled workers can differentiate themselves from the less-skilled by obtaining costly education. Signalling behaviour in this vein is not only evident in the labour market, but many other aspects of life. A prominent example is “conspicuous consumption,” in which people race to the top of a social ranking by purchasing more expensive and outlandish goods.

Game of Status

Thorstein Veblen considered conspicuous consumption to be a “means of reputability to the gentleman of leisure,” spending that serves to impress and enhance one’s status in the eyes of others. In the modern era, one’s social standing is determined by their relative income or wealth. While personal net worth is easily recognizable for someone on the Forbes list, the rest of the society engages in purchasing conspicuous goods, such as designer bags, bigger mansions and private yachts, to flaunt their wealth without disclosing the actual figures in their bank accounts.

However, the rise of the aspirational class – individuals defined not by their income brackets, but rather by their cultural capital and consumption choices – has challenged the current social status perception, and pushed for a switch towards goods that have more than monetary significance to signal one’s social status. Instead of purchasing luxury goods, we consume products with hidden values. Carrying a bottle of 1947 Château Cheval Blanc does not scream “expensive” at first glance, but highlights one’s taste immediately. This type of new conspicuous good requires a knowledge threshold to understand its worth and reveals a degree of sophistication that contributes to social ranking.

This switch is expedited by the pandemic. The series of lockdowns and travel restrictions have caused a contraction in the luxury goods industry, and the drop in demand is in part associated with the weakening power of status revelation using branded goods. Since people spend an enormous amount of time indoors, the number of social events where consumers can flaunt their possessions has decreased, and in these instances, the signalling mechanism fails, since no one is there to notice it.

As people are taking their social lives online, social media platforms are becoming another avenue for them to display their luxury expenditures. But, the frequency of social media content generation is so great that a photo can be engulfed in cyberspace in a matter of minutes. Further, repeated postings could lead to lost interest due to lack of novelty and also create the sense that the particular user only owns a few luxury items, which is not a good signal. So instead, people post about wine selections, yoga classes or book subscriptions, which fall under the new conspicuous consumption category that have hidden values on the degree of sophistication. These are relatively inexpensive goods and provide variety while reflecting on the same level, one’s quality of life that is positively correlated with social ranking.

In Hopkins and Kornienko’s study on the status game, they indicate that if the social status is determined by one’s standing in the income distribution, conspicuous consumption is “wasteful” as it has no net effect on the individual’s position and leads to a Pareto-inferior outcome. If individuals have cardinal concerns instead, where they compare their relative levels of conspicuous consumption against the others, then greater competition would lead to lower welfare at all income levels as people trade-off between actual welfare-enhancing consumption and conspicuous ones.

While luxury spending is considered “wasteful”, the new conspicuous goods could be “useful”. For instance, readers of award-winning books are generally perceived by society to be elite and therefore occupy a high social ranking. Those who purchased them would eventually gain some knowledge from reading – or at least partially understanding – the content, warranting a meaningful post on social media. We may deem this as an act of cultural capital accumulation that could impact individuals’ future networks or income. If competition for social status is inevitable, why not spend on goods that could have a small but lasting positive effect as opposed to wasting valuable resources.

Signals to “Swipe Right”

Signalling is also prevalent in the dating market. In Reduce Uncertainty of Online Potential Mates: Employing Signalling Theory, Lo and Lin indicated that the online dating environment is filled with uncertainties – attributes such as looks, income and education serve as signals to indicate one’s potential quality to the rest. While these searchable attributes are easily observable, it can be challenging to distinguish one’s experiential attributes, such as degrees of kindness, confidence, intelligence or humour, which are important to the success and quality of a match. Since such personal characteristics are considered invisible, people can only learn about them after being matched online and deciding to meet in person. Unfortunately, such interactions are time-consuming and have been severely curtailed amidst the pandemic.

On the bright side, many companies have rolled out video chats for matched users during the pandemic. This has reduced uncertainty in searchable traits, such as looks, and has also shone a light on certain experiential attributes, like honesty. Some firms like Bumble, one of the UK’s leading dating apps, have gone further, allowing users to distinguish themselves even before a match is made, by adding a “vaccination badge” to their profiles once they receive a Covid-19 jab. This declaration showcases one’s responsibility and intentions to protect those around them. It can even be perceived as an indication of one’s risk aversion profile. These experiential attributes can boost one’s perceived quality as a mate, something previously unnoticeable before “swiping right”.

The evolution of signalling tools in this case disrupts the normal sorting behaviour by allowing for more characteristics that people can sort on. It is also time-saving, as matches made due to imperfect information of experiential attributes can be filtered out straight away, leading to better match quality.

Consistency in Good Performance

Returning to where signalling theory first started, Spence’s job-market signalling model describes how the acquisition of education credentials sends signals regarding aptitude from workers to employers. To obtain such recognition, people are evaluated based on the many qualifying examinations that they have to sit throughout their schooling years.

The pandemic has caused disruptions to the sitting of some qualifying examinations, forcing a change in the manner that students are evaluated. For A-levels, students are no longer appraised based on a one-time exam score, instead, schools provide a “predicted” grade that students would most likely achieve. This grade is calculated based on the standardisation of students’ mock results and formative non-exam assessments.

The change in grading is liable to potential bias. Sky News reported that for the 2021 cohort, 44.8% of students were given A or A* grades in England, Wales and Northern Ireland. It is hard to determine if such a boost was a result of bias from the new evaluation method, or if students generally improved.

Despite the potential controversy, there have been advantages as a result of this change. While the previous evaluation was a one-shot merit-fail game, the new method is based on a series of performances throughout the academic year. The predicted score generated in such a system not only provides a signal of merit that confirms the students’ quality but is also a signal of consistent high performance. While this combination does not necessarily provide information about students’ capability to perform under pressure, it still offers some insight into their aptitude and thus remains a valuable signal. In the long run, this could encourage students to consistently maintain high standards throughout the academic year.

Painting The Silver Linings

Despite the inconvenience the pandemic has caused, the advancement in certain societal tendencies is clear. In the aspect of status signalling, people are moving away from “wasteful” consumption of luxury goods in favour of new conspicuous goods that have certain embedded values and provide scope for positive externalities. The speed of such evolution has been accelerated by the sudden contraction in social interactions and the growing need to take our social lives online. The pandemic has also influenced the online dating landscape, where the quality of potential mates can be evaluated on a greater spectrum of signals. Finally, the elimination of one-time evaluation in certain qualification exams has encouraged students to perform more consistently, a quality that may improve one’s work ethic later in life.

When the famous French artist Henri Matisse became bedridden due to his illness, he experimented with a new technique that produced colourful illustrations made from cutting and tearing shapes from paper painted with gouache. This gave rise to many inspirational paintings, such as “The Snail”. As he adopted this new style, he reportedly said that “il y a des fleurs partout pour qui veut bien les voir”, meaning, “there are always flowers for those who want to see them”. In this sense, Matisse’s concept is clear; as current circumstances push us towards finding alternative signalling tools to bridge information gaps, this evolution can set us on a better path.

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