Long ago our distant ancestors lived through both good times and bad. In bad times, they did their best to survive, while in good times they asked themselves, “What can I invest in now to help me in coming bad times?” The obvious answer was: good relations and reputations. So they had kids, worked to raise their personal status, and worked to collect and maintain good allies.
Great article! You mention randomized controlled trials comparing nurse practitioners and paramedics to nurses and doctors? Can you post the reference for those please?
I mean it's either college used to be too cheap and is now fair, or college used to be fair and is now too expensive. seems like it's now fair is more reasonable than the other one
The idea that everyone was way wrong about the value of teachers and doctors for decades, and are only now not mistaken, seems pretty crazy theory on its face.
This is very interesting, I read it after SSC's review of Why are the prices so damn high.
However, I think you're missing a larger point here: you never discuss how much these things are *worth*. i.e. there is some EV of going to the doctor if you're sick, investing with a money manager, hiring a lawyer to help with paperwork, etc. If we were perfectly knowledgeable about the field, we would know exactly how much something is worth (X), but there would be a different market price (Y) depending on how perfectly knowledgeable the market participants were (uncorrelated errors will make the market more knowledgeable than participants obviously but Y will still be some amount diff than X).
Say that you are sick, and you are a fantastic doctor. You correctly diagnose the issue, find out that for $600 you can eliminate it, and conclude that eliminating it is worth $1000 to you. So you go buy the medicine/procedure/whatever to make this happen.
Now, imagine you are sick, and you are not a doctor. You cannot correctly diagnose the issue. It is difficult. You find out that for $600 you can eliminate it. Sounds pretty good. It could be cancer, it could kill you down the road. Who knows. You have no clue whether that is good value or not.
In some instances, prices are rising (correctly) b/c the thing is undervalued. College/housing are perfect examples: colleges and houses (and stocks) were too cheap in the past and are correcting. If you want to be paid 250k at age 25, the ONLY way you can do it is via college. Now, at 60k a year for college that may or may not be worth it, but the best outcomes are reserved for those who have degrees. Even if it's -EV, it still gives you the highest chance at success.
In many of the other fields (doctors, investment managers) people who have the ability to analyze EV correctly do not make poor decisions; investment professionals do not invest with fee-taking, index-underperforming managers. They understand it is a -EV decision. However, 99% of people are financially illiterate and have no idea the EV of the decision they're making.
It seems more robust to me that the cause of rising prices can be more cleanly explained by
1) things being worth more than they are priced and correctly increasing2) markets where most of the participants cannot correctly evaluate EV.
I think the post is quite interesting, I just think it would be more accurate if it included this info.
First post, but have been a reader recently. Enjoying the site!
Teachers and doctors in Sweden are also underpaid relative to the US.
For prestige signaling to actually make sense the good or service on offer can't be a public good; there needs to be a discernable line connecting the person paying for the service, with the people whom he is trying to impress. Single payer systems are public goods by design, so they remove this connection. Since markets for private education and healthcare are significantly smaller and more recent phenomena in both Poland and Sweden, these institutions have not assumed the same roles as they have in the US - the Polish and the Swedes presumably signal prestige by other means instead, such as offering each other Pierogi and meatballs.
Thoughts by Robin? Would your hypothesis predict that single payer systems, where the identity of the benefactor is obfuscated through the tax system, don't function as prestige signaling institutions?
I don't ask directly for track records of doctors and teachers because that would be rude.I have no official/accepted way of doing it indirectly except for gossiping (which I don't trust) and ranking websites (which I somewhat expect to be biased towards negative opinions). I use these websites assuming that at least the relative ordering is preserved (but still fearing that doctors saying nice things instead of accurate things might be rated lower)
As I'm from Poland, where https://www.businessinsider... teachers wages are very low, it is difficult for me to understand this thesis intuitively. Yes, teachers are high status, and so are doctors, but both professions, at least in public sector, are underpaid relatively to other professions here. It has something to do with the notion that education and healing are "missions" one should embark without expecting material gains, and indeed these professions attract and sustain only people with this missionary attitude.
In fact, while signalling that has an aspect of dominance tend to involve low-status workers, prestige-displays tends to involve high-status workers. So, the phenomenon that you point to may be partly due to dominance-displays being less accepted (whilst prestige-displays remain more accepted; especially if they are more subtle, like the ones you discuss are).
Great article! You mention randomized controlled trials comparing nurse practitioners and paramedics to nurses and doctors? Can you post the reference for those please?
Might consulting firms hire new grads from top universities because the work is g-loaded with little theory?
Or the value of college went up as the ability to get a good job without it vanished.
I mean it's either college used to be too cheap and is now fair, or college used to be fair and is now too expensive. seems like it's now fair is more reasonable than the other one
The idea that everyone was way wrong about the value of teachers and doctors for decades, and are only now not mistaken, seems pretty crazy theory on its face.
This is very interesting, I read it after SSC's review of Why are the prices so damn high.
However, I think you're missing a larger point here: you never discuss how much these things are *worth*. i.e. there is some EV of going to the doctor if you're sick, investing with a money manager, hiring a lawyer to help with paperwork, etc. If we were perfectly knowledgeable about the field, we would know exactly how much something is worth (X), but there would be a different market price (Y) depending on how perfectly knowledgeable the market participants were (uncorrelated errors will make the market more knowledgeable than participants obviously but Y will still be some amount diff than X).
Say that you are sick, and you are a fantastic doctor. You correctly diagnose the issue, find out that for $600 you can eliminate it, and conclude that eliminating it is worth $1000 to you. So you go buy the medicine/procedure/whatever to make this happen.
Now, imagine you are sick, and you are not a doctor. You cannot correctly diagnose the issue. It is difficult. You find out that for $600 you can eliminate it. Sounds pretty good. It could be cancer, it could kill you down the road. Who knows. You have no clue whether that is good value or not.
In some instances, prices are rising (correctly) b/c the thing is undervalued. College/housing are perfect examples: colleges and houses (and stocks) were too cheap in the past and are correcting. If you want to be paid 250k at age 25, the ONLY way you can do it is via college. Now, at 60k a year for college that may or may not be worth it, but the best outcomes are reserved for those who have degrees. Even if it's -EV, it still gives you the highest chance at success.
In many of the other fields (doctors, investment managers) people who have the ability to analyze EV correctly do not make poor decisions; investment professionals do not invest with fee-taking, index-underperforming managers. They understand it is a -EV decision. However, 99% of people are financially illiterate and have no idea the EV of the decision they're making.
It seems more robust to me that the cause of rising prices can be more cleanly explained by
1) things being worth more than they are priced and correctly increasing2) markets where most of the participants cannot correctly evaluate EV.
I think the post is quite interesting, I just think it would be more accurate if it included this info.
First post, but have been a reader recently. Enjoying the site!
Teachers and doctors in Sweden are also underpaid relative to the US.
For prestige signaling to actually make sense the good or service on offer can't be a public good; there needs to be a discernable line connecting the person paying for the service, with the people whom he is trying to impress. Single payer systems are public goods by design, so they remove this connection. Since markets for private education and healthcare are significantly smaller and more recent phenomena in both Poland and Sweden, these institutions have not assumed the same roles as they have in the US - the Polish and the Swedes presumably signal prestige by other means instead, such as offering each other Pierogi and meatballs.
Thoughts by Robin? Would your hypothesis predict that single payer systems, where the identity of the benefactor is obfuscated through the tax system, don't function as prestige signaling institutions?
This makes sense, as the forager mind evolved to use prestige as a proxy for productivity - not people's documented track records.
Do you have any posts about what you consider the better quality signals to be?
Fixed; thanks.
See the discussion of the Baumol effect for education and medicine on SSC (posted today):https://slatestarcodex.com/...
"...roughly tripled, a far larger increase *than* seen in median pay."
I don't ask directly for track records of doctors and teachers because that would be rude.I have no official/accepted way of doing it indirectly except for gossiping (which I don't trust) and ranking websites (which I somewhat expect to be biased towards negative opinions). I use these websites assuming that at least the relative ordering is preserved (but still fearing that doctors saying nice things instead of accurate things might be rated lower)
As I'm from Poland, where https://www.businessinsider... teachers wages are very low, it is difficult for me to understand this thesis intuitively. Yes, teachers are high status, and so are doctors, but both professions, at least in public sector, are underpaid relatively to other professions here. It has something to do with the notion that education and healing are "missions" one should embark without expecting material gains, and indeed these professions attract and sustain only people with this missionary attitude.
Increased life expectancy probably is both cause and effect. Cause, because older people need more health care. Effect, when it works.
In fact, while signalling that has an aspect of dominance tend to involve low-status workers, prestige-displays tends to involve high-status workers. So, the phenomenon that you point to may be partly due to dominance-displays being less accepted (whilst prestige-displays remain more accepted; especially if they are more subtle, like the ones you discuss are).