Monday, February 13, 2012

Spence's Wedge

Robert Frank believes that one hundred years from now Charles Darwin will be held in higher esteem as an economist than Adam Smith. If his understanding of Darwinian theory is correct, and Darwinian theory implies that evolutionary factors that motivate sexual selection are ultimately detrimental to the group as a whole, then I have a counter-proposition: I propose that one hundred years from now Michael Spence, winner of the 2001 Nobel Prize in Economics and father of the job-market signalling model, will be held in higher esteem as an evolutionary biologist than Charles Darwin. Signalling theory states that, all other things equal, good workers will be willing to undergo a more rigourous education and pay a higher opportunity cost (i.e. tuition) than bad workers. Thus, educational attainment, even if it doesn't necessarily correlate with increased skill or knowledge, is an effective signal of work-ethic and intelligence because it signals a willingness to work hard, learn new skills, and make tradeoffs for long-run gains.
Signalling theory is a big reason that we go to college: not just to get smart, but also to prove that we're smart.
Animals send signals, too. The main reason that bull elk grow antlers and fight each other with them is not, as Frank implies, because female elk randomly all decided (or randomly evolved to think) that exposed bone is sexy. Antlers exist to transmit information. Large antlers are a sign of a healthy immune system and high nutritional intake. THAT, is sexy. Antlers accurately send the signal to prospective females that the male is A) healthy and in fighting shape, B) able to take care of himself nutritionally, and C) disease resistant. How increased offspring from such elidgible males is bad for the species overall, I cannot say.
Although the free-market, like the ecosytem, isn't perfect, it allows participants, sometimes in clumbsy ways, to seek out the best available methods and options. Some things that, superficially, are detrimental or unnecessary for an individual make the group better off overall. Mother elk know this innately, Michael Spence know this theoretically, and Robert Frank sometimes doesn't seem to have a clue.


  1. Great post! I referenced when you talked about this in my post. I think this is a large oversight on Frank's part. All this signaling can be thought of as the transaction costs of life. Without them, how would elk find mates? How would we show others our level of expertise? Outward self expression, even when in the form of conspicuous consumption, serves a greater purpose than to just one up each other with cool shit.

  2. Insightful and informative post. I am looking up Michael Spence as I write this.