Robin Hanson responds to my Bloomberg View post about signaling.

More generally I call a message “signaling” if it has these features:

1. It is not sent mainly via the literal meanings of words said.
2. It is not easily or soon verifiable.
3. It is mainly about the senders’ personal features, perhaps via association with groups.
4. It is about sender “quality” dimensions where more is better, so senders want others to believe quality is as high as possible, while others want to assess more accurately. Such qualities are not just unitary, but can include degrees of loyalty to particular allies.

Cheap talk cannot send a message like this; one cannot just say such a thing, one must show it. And since it cannot be verified, one must show it indirectly, via how such features make one more willing or able to do something. And since willingness and ability track costs, these are “costly” signals.

This seems to add a few arbitrary restrictions to the set of things we might try to describe with a Spence-style signaling model. That's perfectly OK (especially since I was complaining about the overuse of the term, not the underuse!). But I think it also makes things a bit more complex than they need to be.

Let's focus on what I think are the three key characteristics of signaling models:

1. The signal must be costly to send for all types.

2. Different types must have different costs to sending the signal.

3. If you take away the cost differential there will be a pooling equilibrium.

The first condition assures us that the asymmetric information imposes costs on the economy; without (1), the model just becomes a truth-telling mechanism. Without (1), you just say which type you are, pay 0 cost, and society knows you're telling the truth.

The second condition creates the separating equilibrium. It means that signaling "works", in terms of revealing people's true types.

The third condition is why you need signaling in the first place. The separating equilibrium isn't first-best (that's guaranteed by condition 1), but it's constrained-optimal. The pooling equilibrium - the thing you avoid by creating the cost differential in (2) - is even worse than the separating equilibrium.

Robin thinks that my example of the hipster moustache is signaling, and explains why:

Let’s distinguish three different kinds of messages I might send with my waxed moustache:  

1) “I have thick shiney (sic) hair.”... 

2) “Hipster is one of my interest areas.”...Technically, this is a “cheap talk” message. 

3) “I am especially devoted to the hipster ethos” or “I especially embody hipster ideals.” That is, I am especially willing to identify myself as a hipster, and my personal features are an especially high quality match to ideal hipster features, including having a creative and contrarian yet attractive and coherent personal style that fits with current hipster fashions. These messages are hard to verify, and the interests of observers and I conflict. While observers want to accurately rank me relative to others, I may want them to estimate me as having maximal devotion and quality. Since verification and cheap talk won’t work here, I have to show, not just say, my messages. 

To show my hipster devotion, I can choose an appearance that is sufficiently off-putting to many people’s work, home, church, etc. associates. By paying the cost of putting off possible associates, I show my devotion to hipsterism. To show my hipster features, I can pay to track hipster fashions and to continually search in the space of possible appearances for a combination that simultaneously reflects current fashions while being creative, coherent, and showing off my best personal features. Not being a hipster, I don’t know how exactly that works for them. But I do know, for example, that since lipstick and tight clothes make some bodies look better while making other bodies look worse, they are costly signals of the quality of lips and body shape. There must be similar factors for showing off hipster qualities.

#3 is why Robin thinks of hipster moustaches as "signaling."

I think it's obvious that hipster moustaches satisfy my condition 2 from above - hipsters definitely pay a lower cost for having hipster moustaches, for a variety of reasons (most importantly, they like the style more than others do).

But do they satisfy my condition 1? Do hipsters pay a net cost for their moustaches? Robin suggests that they do, because the moustaches are "off-putting" to people at work, church, etc. But I doubt that this is, in fact, true. Do hipsters look in the mirror and think "Dang, I wish I didn't have to grow this stupid moustache just to prove I'm a real hipster"? I doubt it. I bet they intrinsically enjoy having the moustaches. This is very different from the experience of someone who has to work hard to get some pointless credential just so he can get a job - i.e., the situation Spence originally suggested.

I also doubt that the moustaches are particularly off-putting to most of the people hipsters want to associate with. Sure, people in some Baptist church in Alabama would be put off if I walked in with a big ol' moustache. But I bet hipsters have no desire to actually go hang out in that Baptist church. Also, I bet they tend to have jobs with people who aren't offended or repulsed by hipster moustaches, because I bet they would really hate the kind of workplace environment where people are repulsed by moustaches. So the mere fact that some people are repulsed by hipster moustaches doesn't mean that hipsters actually pay a cost from that repulsion. In fact, offending those people may give hipsters pleasure.

Next: do hipster moustaches satisfy my condition 3 from above? Are there a bunch of wannabe hipsters who would love to pass themselves off as hipsters if they just didn't have to grow that damn moustache? I doubt it. What non-hipster wants to be a hipster? Maybe a few. Maybe there's some guy out there who really has a thing for hipster girls, and who thinks that they only date hipster guys (False, btw!). But I bet these wannabes are few enough in number that distinguishing themselves from the wannabes is not a huge concern for the hardcore hipsters. (I could be wrong; perhaps America gazes upon envy at the hipster community, bitterly wishing it could be part of the fun!)

Anyway, it's possible that hipster moustaches satisfy all 3 conditions of a true signaling model, but I doubt it. More likely it's just a truth-telling equilibrium.

It also seems likely that much of the fad for labeling non-signaling mechanisms "signaling" is just a nerdy way of insulting countercultures and subcultures. It's a fancy way of saying "Hey hippie, get a haircut!" - of attempting to enforce social conformity by accusing standouts of inauthenticity. But it doesn't really seem to get the economics right, except maybe in a few scattered situations.

(P.S. - If you want mathematical models of conformity, nonconformity, subcultures, hipsters, etc., I would recommend this or this.)