Bryan Caplan  

Signaling and Vicky Clubs

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Supply, Demand, and Outcomes... Signaling and Costs...
Arnold's post on segregation makes several points on the signaling model of education.  I'm here to rebut them.  Arnold's in blockquotes:

1. Where Bryan sees college as a useful signaling device for those who are cognitively gifted, I see it as a useful segregation device for the Vickies.

As I've said several times, I see college as a useful signaling device not just for intelligence, but for two "Vicky" traits: conscientiousness and conformity.  Which makes me wonder: If college is where the Vickies go, won't college be a strong signal that you're a Vicky?  If so, Arnold's model morphs into mine.

2. The segregation model predicts that as the society gets wealthier, the dollar cost of college will get higher. The signaling model would not necessarily predict that. In fact, it would predict that the market would try to find less expensive signals.

Au contraire.  Not only does the the signaling model predict that a higher payoff for college will increase demand for signals; it predicts that if the price of signaling falls, people need to increase their quantity of signaling to remain separate from the pack.  As I've explained before:

Many economists assume that market forces will somehow figure out a way to make signaling costs disappear.  But as far as I can tell, they never explain why signaling costs would be easier to eliminate than any other costs.  And on reflection, the truth is precisely the reverse: Signaling costs are especially hard to eliminate.  Why?  Because when you make signaling cheaper, agents' natural response is to signal more intensely or on another dimension.

Let me illustrate my claim with a prediction: The typical engagement ring will always cost several weeks' income.  If industry figures out how to cheaply synthesize gold and diamonds, we'll start making engagement rings out of something else - platinum and rubies, or ivory and T-rex teeth.  Why?  Because one major function of engagement rings is to signal commitment with an expensive gift!  To separate the sheep from the goats, the signal has to be expensive enough to convince the goats to give up.

Arnold again:

3. The segregation model predicts the emergence of institutions like Boston University and George Washington University, which require much more money than brains to attend, and yet which have fairly high prestige, considering.

I'm happy to admit that, in addition to their other functions, colleges are social clubs.   I suspect that this social club function is especially important for religious colleges (think Brigham Young) and less-selective private colleges.  But even if students in "clubby" colleges are implausibly apathetic about impressing future employers, belonging to any selective club almost automatically sends a signal.  As long as (a) the average graduate of BU or GWU possesses special traits that employers value; and (b) employers can't costlessly measure these traits, a BU or GWU degree will pay off in the labor market.

4. I think that if either the utilitarian model or the signaling model of higher education were correct, I would be sure to collect on any bet I make with Bryan about the demise of colleges. If college as we know it manages to persist for another two decades, it will be thanks to the segregation model.

Arnold's right about what he calls the "utilitarian model," better known as the human capital model.  But contrary to Arnold, signaling models readily predict the persistence of costly, inefficient customs.  Indeed, it's the persistence of costly, inefficient customs that inspire much of the signaling literature.

Given Arnold's faith in educational innovation, I have to ask: If entrepreneurs can figure out cheaper ways to teach students, why can't they figure out cheaper ways to segregate students?  Suppose Harvard is just a Vicky Club.  On Arnold's account, there's no reason why an upstart Vicky Club couldn't come along and offer Harvard students Harvard-level segregation for a fraction of the cost.  In the signaling model, of course, this wouldn't work: Quitting Harvard to join an "upstart Vicky Club" sends a godawful signal to employers and the world.


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COMMENTS (9 to date)
J Storrs Hall writes:

There was one comment in that thread asking how college could represent or reinforce Vicky values, since it is in practice a Bacchanalia. Here's a theory that seems to fit that fact and Murray's: College is a filter for the kind of people who can operate in a libertine society, i.e. one without the virtues as externally imposed social norms, but who can nevertheless act virtuously in their private affairs.

andy writes:

I don't quite get point 2. Are you saying that the college isn't even a filter - i.e. you won't do it, if you are stupid/impatient etc. - but is simply a singalling device that you choose to 'buy' with money and time - and - somehow - clever people choose to buy it more then stupid people, therefore the price won't go down, because clever people will always choose to buy something expensive to signal that they are clever?

Why shouldn't I cheaply signal that I am clever, provided the stupid cannot use such signal? Why shouldn't I be seeking to find such cheap signals?

Brian Clendinen writes:

I have found that the analysis of hiring decisions on this blog are way to theoretical and academically nieve with little understanding on how the hiring process actually works.

I think there needs to be some extensive surveying across industries and job types to understand the thought process and what goes into hiring someone and selecting them over other applicants. Granted I only have two data points (firms) to base my analysis on but I find there are a lot of really important factors that have huge implications and impact on the rational of why someone is hired that the theories ignore.

For example research has shown people prefer charismatic people over competent people in job positions. The ideal combination is charismatic person who is also competent, add in good looks ( I believe research back this up) and one has a serious advantage over someone who is a ugly boring person but highly competent.

Also politics and the power HR has in some large bureaucratic firms can’t be ignored. They act as a filtering mechanism. The hiring process would be a lot different if they did not have so much control or there fingers in the process under the excuse (some times valid) of it is their job to insure labor laws are followed. However, right to work states tend to take much of this excuse away therefore HR tend to be less influential in the hiring process.
There are a lot more examples but the assumption that hiring decisions are a completely rational process on the per job bases is wrong.

Airman Spry Shark writes:

Point of clarification: signals need only be prohibitively costly for 'goats', not 'sheep'.

Slim934 writes:

I agree with Andy.

The simple fact that a particular signal is costly (or cheap) to administer does not imply that it will actually be useful to everyone.

To use an analogy, losing weight is cheap (generally all one needs to do is eat less). That certainly does not imply that it is easy to do.

Lars P writes:
Let me illustrate my claim with a prediction: The typical engagement ring will always cost several weeks' income

DaviD Friedman explains how the custom of expensive engagement rings arose in the 1930's to facilitate premarital sex due to changing mores and Supreme Court decisions here:

http://www.daviddfriedman.com/Laws_Order_draft/laws_order_ch_13.htm

Summary: When courts stopped punishing "breach of promise to marry", the custom of giving the woman a valuable piece of jewelry that she could keep if the man left evolved as a replacement.

joeftansey writes:

Good rebuttal. I liked Arnold's post and I liked your response. Very educational.

My gut is that the difference in the models is muddled in the definition of how costs/benefits/signals are measured. As you point out, there are also signals for conformity and so on.

Bryan Willman writes:

As I commented on Arnold's post, Life is Graded on a Curve, and the first rule of Elite's is "Not You".

Let us divide "college" into "human capital development" (and include various kinds of self discipline, people skills, and so on) and "costly signalling".

We can predict that the "costly signalling" part will only survive as long as relatively few people can manage to acquire the signal, so that it has leverage in getting past filters.

In some sense, sending everybody to college so "everybody" has a 4 year degree will devalue those degrees.

Roger Sweeny writes:

In some sense, sending everybody to college so "everybody" has a 4 year degree will devalue those degrees.

Just like what has happened to high school diplomas.


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