A Brief Introduction to Signaling Theory: Why It Matters For Personal Branding, Social Media and Marketing

In life, work and business, getting what you want is often dependent on sending the right signals.

Imagine you’re a billionaire.

You’re a little unorthodox, you’re careful with your money and you like to micro-manage things.

So when you urgently need a new housekeeper for your place in the Hamptons, you put an advertisement on Craigslist yourself.

But as you’re reviewing the list of candidates you realize that you have a problem. You don’t know enough about each of the applicants to make a hiring decision. One of the candidates could be a suspected serial killer, a part-time arsonist or just really bad at their job. And you have no way of knowing.

And this isn’t just a problem for you. Think about it from the potential housekeeper’s point of view. The candidate who really can get the shine back into those wooden floors has no way to distinguish themselves from the one who is making a suit out of human skin.

In situations like these, what is needed is a signal. A good candidate needs a way to show their positive qualities to an employer in a way that bad candidates can’t.

But this applies to much more than housekeeper’s job interviews. Signaling affects almost every aspect of your life.

It’s Not Showing Off, It’s Signaling

Society generally looks down at self-promotion and “showing off”. It’s considered vulgar and unseemly.

But it’s highly subjective as to what is showing off and what isn’t.

You might casually mention your new $2500 Ultrasone headphones to two friends. One might think nothing of it. While another might think you were using high-end audio equipment to rub their nose in your success.

But if we remove the subjective, negative connotations of the term “showing off” what are you left with? It’s just letting people know about your characteristics, abilities and possessions.

Another word for this is signaling.

Signaling is important because like with the housekeeper applying for a job, sometimes you need to let people know more about you in order to get what you want. Especially when the characteristic you want them to see is not immediately visible.

Signaling is Everywhere

Signaling is a concept that has been studied in zoology, anthropology, game theory and behavioral economics because as it turns out, a lot of human (and animal) behavior is driven by the need to convey information to others about ourselves.

Let’s look at two examples:

1. The $78,000 watch that’s not for telling the time

How can you tell if someone is financially successful?

People don’t generally go around telling everyone “I’m rich” or handing out copies of their bank statements. And there isn’t a Forbes 400 List that covers people who work at your office or attend your local golf club.

Instead, we mainly judge other people’s wealth using an indirect measure: their possessions.

We use the size of their house, how expensive their car is, and if watch-manufacturers are to be believed, the watch they wear.

From that point of view, a $78,000 Patek Philippe wristwatch is not for telling the time [1]. When it comes to time-telling, you can get a (much more accurate) digital watch on eBay for a few dollars (or as an absolute last resort take your smartphone out of your pocket and look at the screen).

Similarly, a $300,000 Himalaya Crocodile Skin Birkin handbag is no better at carrying things than a similar bag bought at the local market for $10 [2].

In both cases, spending (much) more money on something that has no extra functionality is a signal of underlying wealth.

The preposterous price is therefore a feature not a bug.

2. Jumping off buildings makes perfect sense

Have you ever wondered why you like speeding in your car, even when you’re not in a hurry?

And why do people get a thrill from base-jumping, hang gliding or skiing down mountains?

OK it’s an adrenaline rush, but what’s the point of it?
Surely your ancestors who had a taste for life-shortening activities like jumping from tall places would be the ones least likely to survive and pass on their genes to the next generation.

You would think that in a tribe of prehistoric humans, it would be the sensible, nervous types who were left to procreate after the thrill-seekers had bounded off the nearest cliff-face to their premature deaths?

But part of the reason why we get that adrenaline rush is because of signaling.

In the past, being good at dangerous activities like hunting and combat was not just useful for the tribe; it was a signal to others of your desired traits like strength, stamina, agility and courage.

In present-day tribal societies (like the Mer Islanders off the coast of Papua New Guinea), young men who engage in risky activities (like underwater turtle hunting) have higher status and better marriage prospects.

Therefore we can assume that in the past, if you hunted woolly mammoths, even if it was very dangerous, it was worth the risk, because if you survived [3], you were more likely to reproduce (and thereby pass on your risk-taking desire to your offspring).

Engaging in risky behaviors like fast driving and street luging, is a signal to others of inner attributes like coordination and courage, that you don’t get a chance to display in normal day-to-day interactions.

You’re Always Signaling

Because so much of our behavior is driven by the need to convey information to others, it makes signaling relevant to life in general, but also to specific situations like workplaces, dating, job interviews, caged wrestling matches and keeping up with the Joneses.

In fact, when you start to think about it, signaling drives a lot of the choices you make on a daily basis, like:

– The car you drive

– The clothes you wear

– Your job

– Your hobbies

– Your musical tastes

– Your Facebook status updates

I’m not saying you only do these things to signal, but if you take a step back, you’ll see that a big influence on these decisions is the image that you think they present.

How Understanding Signaling Can Help You

So signals are a reality of everyday life. But on a practical level having a deeper understanding of signaling is useful because:

1. You signal to get what you want

Many of the things we want, depend on other people’s opinions of us. This is true of the employee trying to get a promotion, the single person trying to find a partner, the life coach trying to find fresh victims and the author trying to sell their books.

Conscious appreciation and understanding of the signals you send can have an obvious impact on your outcomes in life.

2. Reading other people’s signals

It’s useful to be able to spot signaling behavior in others and to see through fake signals.

3. Signaling is good for business?

Signaling is also relevant for businesses trying to sell products.

Your Silicon Valley startup may be “making the world a better place through Paxos algorithms for consensus protocols” [4], but for a customer deciding whether to purchase your product, often quality and reliability are not visibly discernible. So they rely on signals to make their buying decision.

Knowing which signals are effective can therefore help your business sell more of your product or service.

What makes a good signal?

Not all signals are created equal. Here are four characteristics that make an effective signal:

1. As hard to get as a six-pack

An effective signal should be easy to get for someone who has the underlying characteristic, and hard to get (“costly”) for everyone else.

For example, despite what I’ve been lead to believe, it seems that you can’t get washboard abs just from reading an article in Men’s Health magazine.

If it were that easy then a six-pack wouldn’t be a good indicator of superior fitness.

And although I talked earlier about a watch being a signal for wealth, it’s actually not a very reliable one.

This is because even if you think the watch I’m wearing suggests great wealth and success, it could actually be stolen or fake.

In comparison, you can’t steal or fake a six-pack.

That’s why, if you see someone with a really nice watch, you can’t really be sure that they are rich. But if you see someone with a six-pack, you know they are in shape.

In fact anything that can be acquired with debt, theft or counterfeit is not a very good signal.

This is the main reason why luxury companies hate counterfeit products. It’s not lost revenue they’re worried about because often the people who buy fakes would never have actually bought the genuine item.

But when fake products are everywhere and anyone can have one, the luxury brand loses the exclusivity that would otherwise signal success.

2. More famous than Elon

A signal will obviously only work if it is recognized.

Let’s say you buy a brand new Tesla just to impress your neighbors.

You will have wasted your money if one of your neighbors thinks that Elon Musk is a type of perfume and the other can’t tell the difference between a Model S and a Model T.

This is why luxury companies spend so much money on brand awareness advertising. The Prada handbag needs to be recognized even by people who would never be able to afford one, if it’s to have any signal value.

3. Consistency and congruence count

A guy at a nightclub wearing a pirate’s eye patch (despite normal vision in both eyes) is trying to signal to the ladies that he’s a confident young stallion (with a hint of nautical danger), who doesn’t care what other people think.

But if he’s also fidgeting, has poor eye contact (from the eye not covered by an eye patch) and nervously mumbles when delivering his pick-up lines, women will not think the eye patch shows confidence but instead will assume he has an eye injury or a mental illness.

A signal needs to be congruent with the rest of the image presented in order to be credible.

The lesson here is to think of signals, not in isolation, but as part of an overall impression.

4. How do you pronounce Proust?

A signal must be observable, so that it can do the job of representing the underlying characteristic you’re trying to convey.

For instance, if you’re traveling on a plane or train, you may (consciously or unconsciously) want to signal to those around you that you are intelligent and culturally sophisticated.

You might accomplish this by the choice of book you read in public. Unfortunately with the advent of e-readers, it’s harder to do that since no one can see what you’re reading.

The alternative is to take your e-reader out of your bag and theatrically announce to your fellow passengers “Well I best be getting back to re-reading my Proust” (although you run the risk of mispronouncing “Proust” and sending the opposite signal) [5].

The implication of this is that if you’re ever on a plane or train and someone checks their mobile phone regularly (thereby showing that they’re not a Luddite and are in fact quite attached to technology) but then takes out a physical book to read (as opposed to an e-reader) there is a high chance that they are signaling. Especially if their choice of reading material is a copy of Dostoyevsky, Seneca or the Art of War.

Counter-signaling: Warren Buffett doesn’t need a fast car

Warren Buffett has 77,400,000,000 dollars (approximately).

He lives in a house in suburban Omaha worth about $2 million. Sure it’s a nice enough house, but for the second richest man in the world, it’s oddly understated.

After all, Matt Damon lives in a house worth $18 million and Warren Buffett is worth 967 times more than him.

In fact, if Warren Buffett bought an $18 million mansion like Matt Damon’s every week, it would take him 83 years to run out of money (assuming Buffett made no interest on the money sitting in his account, in the interim).

So given his fortune, why doesn’t Warren Buffett wear Brioni suits, drive a Lamborghini Veneno and live in a 12-storey gold plated castle with a moat? [6]

Welcome to the world of counter-signaling.

Counter-signaling is essentially showing status by not showing off. You don’t signal to show your wealth because you don’t need to.

This is amply demonstrated by Warren Buffett’s current company website. (Pictured below). Appreciate that this is the website of a $413 billion company.

1998 called. They want their home page back.

Other companies need to impress their clients and that often starts with their website.

But Berkshire Hathaway goes the other way. They don’t need to impress you at all and this website let’s you know it.

It should be noted that Warren Buffett is not a showy kind of guy and he’s also acutely aware of the opportunity cost of spending a dollar on anything other than a good investment, so it may be likely that on a personal level he’s not actually counter-signaling.

But equally, when everyone knows you’re the second richest man on earth, do you really need to impress them with a fast car or bling-y wristwatch?

Jumping the line outside the club

Let’s explore this concept of counter-signaling further.

Imagine you’re standing outside an upscale club with a strict dress code.

One guy who approaches the door is dressed in t-shirt and jeans. The bouncer tells him he won’t be let in.

A second man in line is wearing a jacket and collared shirt. They let him in.

But then you see a third man who is also wearing a t-shirt and jeans like the first man. But he isn’t kicked out. In fact, security have let him bypass the line and they are offering him a private booth and free champagne.

You then realize that the third man happens to be Dwayne Johnson.

So in this example:

– The first guy is thrown out.

– The second guy has to signal that he belongs there by dressing well. If he dressed scruffily he would be treated much the same as the first guy and kicked out.

– The third guy transcends signals altogether because he’s a famous Hollywood star, and can do whatever he wants. In fact he can dress down deliberately just to distinguish himself from the second guy. He’s essentially saying: “I can wear whatever I want and still be here, while the rest of you can’t.”

A warning about counter-signaling

It can be tempting to want to try out counter-signaling for yourself.

After all, rather than spending thousands on a new website, wouldn’t it be easier to spend the 15 minutes required to build one like Warren Buffett’s?

And wouldn’t it be so much easier to forget about matching your tie with your shirt and instead show up to meetings wearing a potato sack with a piece of electrical cord as a belt?

Yes it would be easier. But for most people, in most situations, it’s a bad move.

Counter-signaling only works if you are so renowned you don’t need to signal.

Dwayne Johnson might be able to walk into a club flouting the dress code but that relies on the bouncers and management recognizing that he’s The Rock. If they don’t recognize him, his counter-signal actually lumps him in with the regular folk being turned away outside for not wearing a collared shirt.

Your skills and status have to be known to those you’re counter-signaling to, otherwise it will backfire.

Look around, however, and you’ll see everyday people making the mistake of counter-signaling when they shouldn’t be:

– A shy guy at a party thinking if he stands silently by himself in the corner of the room, his “mysterious” demeanor will have people flocking to him.

– A newly starting out consultant with a business card that just has their name on it (without their credentials, job title or specialty) as if they had the name recognition of a world leader, sports star or WWE wrestler.

– An unknown product with a deliberately minimalist sales page that doesn’t give enough information for a customer to decide to take the risk of purchasing it.

Beware of the advice of people who can counter-signal telling people who can’t counter-signal to “do what I do”.

If you don’t have renown, your counter-signaling will not be interpreted as “Wow, look what they can get away with” but instead “Who’s this loser?”

Signaling in Action

In this section, let’s look at some more examples of signaling from everyday life.

While the examples will generally relate to person-person interactions, I’m also going to take the opportunity to talk about signaling for businesses.

1. Social media signaling

Social media is awash in signaling. Here are the most common types of signaling to be observed. Today, look at every social media posting in your feed and they will conform to one of these categories:

2. The mysterious wine gift

Imagine that I bought you a bottle of sparkling wine, told you it was from Cambodia and that it cost $1.75. You might have a sip, vomit it up a little and generally not be too impressed with me. If I then told you, I’d made a mistake and the wine was actually from France, you might take another sip and say “Well that’s quite nice. I didn’t appreciate the subtler notes to the taste the first time”.

But what if I then informed you that this wine was actually from the Grand Cru village of Le Mesnil-sur-Oger making it a $1000 bottle of champagne?

You might then take another sip and suddenly notice the exquisite taste, silky effervescence and vibrant undertones. You may even regret that you opened the bottle now and wish you had kept it for a special occasion, like the birth of your first child or the season finale of Game of Thrones.

What created the transformation in your perception of the wine?

The location implies a story and scarcity.

The location of the winery tells a story that either enhances your perceptions of taste or diminishes them.

Cambodia may be a beautiful country but no one associates it with quality wine. On the other hand, a champagne from a Grand Cru village is tapping into an exclusive, centuries-long history of wine production.

Also, since there is only so much land in the village of Le Mesnil-sur-Oger, there are by definition only a certain number of wineries that can exist there.

Hence the physical scarcity of location also lends weight to the signal.

Price as a signal for quality

It’s also worth noting that for many products like sparkling wine, assassin hire and management consulting, it’s hard to judge the standard of the product beforehand, so people will often use price as a signal of quality. We presume that the more expensive something is, the better it must be.

3. Is that a diamond necklace in that tin can?

Would a new iPhone be quite as impressive if it didn’t come in a box but was handed to you in a supermarket shopping bag?

Would you appreciate an expensive wine served to you from a milk carton?

Why don’t Tiffany’s give their new diamond necklaces to their customers in a tin can?

It’s a mistake to underestimate the power of packaging on influencing your impression of a product.

Similarly, with people, although we shouldn’t judge a book by its cover, it’s hard not to.

The Queen of England might have the “divine” right to sit on the throne, but her position would probably be undermined if she attended official gatherings dressed in a chicken costume.

The common mistake is to try and show that you’re above the fray by putting no effort into clothing, appearance and grooming, in other words, to counter-signal. But remember, counter-signals only work if your status or success is obvious through other means.

4. Giving can be so selfish

Giving to others is clearly a nice thing to do. But from an evolutionary point of view, why do we do it? Why is altruism so widespread?

Sure, there’s the reciprocal side of giving. If you help out someone today, they may be able to help you when you need it tomorrow.

But there’s more to it than that. Generosity has signaling value. It improves your reputation and position in society.

Let’s look at an example that illustrates how powerful this effect can be.

Imagine two business owners: David and George. David has donated a lot of money to many good causes and does so quite openly. George has donated similar amounts to charities but anonymously.

For someone who doesn’t know them personally but has heard of David’s philanthropy, what is likely to be their overall impression of the two?

Firstly, they would assume that David is quite successful. After all, to be able to donate “a lot of money” means that you must have had that money to begin with.

But they might also assume a whole halo of other positive things about David. Maybe that his generosity indicates that he’s more caring, friendly and good-natured.

If someone was choosing whom to do business with, they might feel more favorably inclined towards David as being more trustworthy.

George on the other hand, gets none of the collateral benefits that David does, because his generosity is not visible.

On a similar note, in the 1990s many people thought of Bill Gates as a ruthless businessman. Now they think of him as a kind of secular saint.

What brought about this radical transformation in his public image? It was generosity: his charitable foundation and his pledge to donate the bulk of his fortune to philanthropic causes.

Is there anything else he could have done that could have turned around his reputation so thoroughly? I don’t think so.

So if you think that anonymous giving is more “dignified”, this should give you pause. Not only does donating your time and money in public encourage others to give, it also has undeniably powerful signaling benefits.

5. Why Vin Diesel keeps getting work

You’re the boss of a Hollywood studio and you’ve just bought the rights for a script that you think has great potential.

Unfortunately the script is not based on a comic book superhero or an already successful book series aimed at teenage girls. And it isn’t a sequel of an already successful franchise or a big-screen remake of “Jake and the Fatman” [7].

This means the odds are firmly against it.

You’re faced with a choice. Focus on making a quality movie and hope that things work out, or try and give the film a boost in credibility.

What do you do?

What most studios would do is spend a fortune on hiring an established star (rather than paying a fraction of that amount for an unknown actor).

Why do they do this? Because we, the viewing public, feel that the presence of a known movie star indicates a better movie.

What else is a big Hollywood star’s salary but the movie studio paying $20 million to send a signal to the viewers that “If we can spend enough money to get Vin Diesel, then you can feel reassured that this is a quality movie”.

As with all signaling, it gets people in the door. After that, it’s all dependent on the quality of the underlying product. If the movie is a dud, then not even an all-star cast can save it.

In the same way, candidates in job interviews use references and introductions, and businesses use reviews and celebrity endorsements to associate their brand with third parties to gain trust.

Whether this works in the long-term is dependent on whether the signals are “honest” representations of underlying characteristics.

But presuming you would otherwise have languished in oblivion, borrowing from someone else’s credibility can give you a very helpful boost.

6. I don’t know why I like you. Oh that’s why

You may know the expression “familiarity breeds contempt”. But when it comes to signaling, the opposite is true.

Like when you hear a terrible song over and over again until you frustratingly start feeling nostalgic towards it (“Who let the dogs out?”), the same principle works with people or products.

Repeated exposure to someone or something induces feelings of familiarity that can then turn to trust.

It all goes back to tribal life. If you saw someone over and over again, chances are they were part of your tribe. So the repeated exposure made you feel comfortable.

Similarly, things around you that didn’t kill you over a long period of time were things that you could trust.

In present day life, we’ve all seen people developing friendships and even romantic relationships with others who they were in proximity with for long periods of time, but whom they otherwise might not have under other circumstances.

Continued interaction with the same person or message can short-circuit feelings of trust.

Good marketers know this principle: Repeated messages are necessary, not just to break through the clutter, but are an easy way to gain trust.

Conclusion: To Signal Or Not to Signal

The next time you go to work, attend a party or give a TED talk, reflect on the fact that many of the good things you want in life (a good job, a desirable partner, your own cooking show, a successful company) rely on other people having a favorable opinion of you or your work.

And to achieve many of these things relies on you standing out from other people who want the same things.

Yes, underlying quality and skills matter. But to get to a position where you are able to demonstrate these, you need to signal. Signals get you in the door.

And the fact is, you are signaling to others whether you like it or not. The car you drive, the clothes you wear and the people you hang out with speak volumes about you before you’ve even opened your mouth.

And if you don’t care about any of these things, that is also sending a signal.

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1. There are many Patek Philippe watches that are more than $78,000 (A Stainless steel Patek Philippe 1518 sold for $11 million in November 2016) but it seemed like a good number to make the point.

2. What a $300,000 handbag looks like: Hermès Himalaya Birkin Bag

3. And if you didn’t actually have the traits of strength, stamina and agility, risky behavior was more likely to end in death

4. Silicon Valley s01e07.

5. How to pronounce Proust

6. Warren Buffett loves moats.

7. A forgotten 80’s TV gem: Jake and the Fatman