My Freak On Again

A few weeks ago I posted on appearing at the end of a Freakonomics radio show on “The Folly Of Prediction.”  I now appear at the end of another Freakonomics radio show, this one on “Hey Baby, Is That a Prius You’re Driving?”, i.e., on signaling:

Managing our appearance is actually a lot of what we humans do. Trying to understand, business, trying to understand jobs, school, even medicine. If you don’t realize that people are trying to manage their image, you miss out on a lot of what’s going on.

I elaborate on how we economists signal:

Economists like to point out there’s almost no chance that your vote is going to determine an election. So one of the things an economists like to do to show off that they’re clever economists is to not vote and to say to everybody, hey I’m smarter than all the rest of you!  See, I understand that by voting, it’s not going to make any difference, anyway. And we do a little of that too often. Say, you might not tip at a restaurant because you say, you know I’m never come back to this restaurant again.  And so economists often think like that, they think through the strategy and they go out of their way of maybe being rude or a little thoughtless, in usual language, in order to show, hey I understand the strategy of this. I’ve got to admit, I do that sometimes. I tip at restaurants, I’ll tell you that, but still—

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  • If installing solar panels is a matter of signaling, is it possible to counter-signal by supporting nuclear energy? Or can you counter-counter-signal by claiming that only thorium reactors should be used? Or can you counter-counter-counter-signal …

    Of course, if your superior to all that, you must be omega-counter-signaling and so on up the ordinals…

  • Robin, what you are exhibiting when you don’t tip at a restaurant and never return is how a tragedy of the commons works. You are liquidating the good will that the community of patrons that do tip has built up and accumulated at the restaurant in question by receiving good service but not paying for that good service with a tip.

    The marginal effect of your reneging on yourself is small, and may even be zero from that particular restaurant. But the other patrons of that restaurant will observe negative effects. Their net aggregate negative effect from poor service will probably exceed any positive effect you obtain by not spending money on a tip.

    Since the waiter/waitress probably has a lower income than you, the marginal effect on their lost income from the tip is likely greater than your marginal benefit from keeping it. What you are signaling is that you hold wait staff in such disdain that you don’t consider the implicit agreement between patrons and wait staff to tip when receiving good service is worth following.

    This is a negative sum transaction. The marginal utility you receive from not tipping is small compared to the marginal dis-utility that everyone else receives from your transaction. The lost income affects the wait staff more, the bad mood of the wait staff affects other patrons more. But you seem to think that you get some benefit. I think that what you are experiencing is “economic porn”, the illusion of an economic gain that outweighs the losses in a negative sum transaction.

    But there are lots of people who want economic gains for themselves and don’t care if they cause other people losses, even if the net sum is negative. There is a big demand for such “economic porn”, and “porn stars” who come up with justifications to make “economic porn” seem respectable can be highly compensated. Good way to signal your status and what you are willing to do for money, even to the point of screwing wait staff out of tips.

  • as

    There are more levels to it. For some eating at a restaurant is not about calming hunger, but about signalling. 😉
    The question here is if you want to keep an institution of public eating with pleasant staff kept in the society.
    Robin discovering very huge losses in the system (like health service) may come to a conclusion that if noone cares about millions of dollars and health of patients, he doesn’t have to support any single restaurant to happily live long.

  • David C

    On voting, I thought most economists believed in the median voter theorem. I guess poli sci isn’t their strong suit.

  • eric

    Is there a way to put a thumbs down button so readers can signal when we think a particular article really sucks? This post is good/correct, but it just reminded me that I think facebook should have a “hate” as well as “like” button.

  • The folly of prediction is the introductory topic of this month’s Cato Unbound, to which Robin is scheduled to be a contributor.

  • Curtis’s narration concludes with the observation that the game theory/free market model is now undergoing interrogation by economists who suspect a more irrational model of behaviour is appropriate and useful. In fact, in formal experiments the only people who behaved exactly according to the mathematical models created by game theory are economists themselves, and psychopaths.

    …since after all, why settle for $1 million USD when many people reach the point of being able to give away billions?

    Sometimes not knowing enough is worse than knowing nothing at all.