Showing Off is Important! Costly Signaling Theory - FutureIQ

8,506 views Wait, is this logic right? • May 10, 2023

Slog Reference: Costly signalling

Description

Why rich people buy paintings, and why some rich people are cheap? The answer lies in a concept called social signalling. Let's see what exactly is signalling and how costly signalling affects the behavioural psychology of an individual. While doing so, we will also figure out why poor people buy expensive things and all the other social signals that you would otherwise ignore.

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Democracy's Biggest Lie: https://youtu.be/ns57h46YjZ8
From Instinct to Insight - How Do We Really Decide? Bayesian Thinking - Future IQ: https://youtu.be/9_Ffrs0YyX0

Hope you enjoyed FutureIQ by Navin Kabra and Shrikant Joshi. Do hit us up on Twitter:
@ngkabra http://twitter.com/ngkabra
@shrikant https://twitter.com/shrikant

Listen it on the podcast provider of your choice: https://tapthe.link/FutureIQRSS
Watch other episodes: https://www.youtube.com/playlist?list=PLAppTB0r5_TaYueZ0adD42Wiw5X-wTE4v

Links referred in the video:
You're A Part of A Cult: https://youtu.be/eEfmHpstjSg
Navin's GitHub profile: https://github.com/ngkabra
Costly signaling as a nuclear strategy: https://youtu.be/t6tr-SK1Cf4

Chapters:
00:00 Introduction
00:28 Signaling basics
02:05 How it works?
04:09 Burj Khalifa & signaling
05:50 Costly signaling in real life
07:47 Costly signals
09:25 International relations & signals
10:45 How it helps you?
11:35 Why rich people stay cheap?

#futureiq #signaling

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Transcript

- what the peacock is signaling being a third world country we are now amongst the biggest economies in the world I can hear my bank account screaming at me so what does a peacock the Burj Khalifa and the Harvard degree have in common srikant nothing absolutely what can the peacock have a degree in Burj Khalifa are nothing okay let me simplify it for you okay let me ask a more basic question if I told you that you were allowed to take all the classes in Harvard for a Harvard MBA right just like regular students all the classes all the tests but you were not allowed you will not get an actual Harvard degree and you are not allowed

0m 47s to tell anybody that you studied at Harvard right what fraction of Harvard's fees would you be willing to pay for this privilege I originally wanted to say zero because I wouldn't pay for anything if I wasn't getting a Harvard degree but then I thought maybe I'll I'll pay only as much as you know my savings account allows me to stretch which is still zero but you know right so what you are saying is that a large part of Harvard's degree the value comes from being able to tell people that you have a Harvard degree yeah yeah so that is a concept called signaling okay it comes from evolutionary psychology and that's where the peacock comes in let's take

1m 32s the example of the peacock okay now um important thing is evolution tells us that there are only three things important to all living beings okay okay finding food protecting yourself from a predator or running away from a predator and finding a mate right that's it I thought it was Roti kapada makan but the Roti makan part stayed the kapra went somewhere else well you pair where because you're trying to impress a meat okay it went somewhere else yeah so why does a peacock have such a fancy tail like it's really long it is colorful I have heard that it's to attract a mate okay maybe now if I were a peacock's mate right I would look at the peacock and I would

2m 26s say okay that's a really heavy tale when a cat is trying to eat you you have to fly carrying that heavy weight behind you yeah and it dangles down giving the cat much more time to catch you and eat you right does that sound like a good idea it absolutely doesn't right but it still works it does doesn't it yeah the reason it works is simple what the peacock is signaling ah is look at me I have this heavy tail which makes it easier for a cat to catch me and the bright colors on it which make it easier for the cat to see me yeah no camouflage yeah and yet I am here alive so imagine how

3m 12s strong I must be how fast I must be what my muscles must be like that I am able to not be eaten by The Cat In Spite of carrying all this never say that I thought did you I didn't either I can afford to waste energy on this thing and still have enough left over to have a good living yeah I can afford to spend money on a Harvard degree and continue to have a life without being burned by loans and debts no it's not so much about money right you can't get into Harvard just paying money what you are signaling there is that I got through their highly selective process right yeah the actual learning doesn't

3m 54s matter there are so many people who write Harvard on their LinkedIn because they went there for one weekend right and it still works hold on yeah where does Burj Khalifa come into the picture now okay so building a huge structure like the Burj Khalifa tallest in the world or building the Taj Mahal we all know the numbers of how many people spent how many years building the Taj Mahal yeah right so what signal does it send I mean you know if somebody wanted to live in a house right just building a regular house is much cheaper than building a Taj Mahal and this is not even a house it's a mausoleum yeah yeah so what you are

4m 49s telling the whole world is look at my Empire I can afford to waste money and effort on this thing and still have an Empire so imagine how powerful I must be right similarly Burj Khalifa is telling the world that we are a rich Nation you should come here to do whatever you are spending in your businesses and so on right and to some extent the statue of unity we are building is also India telling the world that we are done being a third world country we are now amongst the biggest economies in the world because we have the biggest statue in the world yes yeah yeah so India is basically trying to signal to the rest of the world uh that

5m 34s uh listen both okay look at us now and look at us from a hike now because we have the tallest yeah nice so um that explains the Burj Khalifa Taj Mahal statue of unity that explains the Harvard degree uh but let's let's talk more in terms of people like you and me how how do I do a costly signal for example so um once you understand this concept and start looking around you you will start noticing it in everything okay uh I uh hire people right so while hiring I ask candidates uh send me a link to your GitHub profile okay now a GitHub profile a GitHub is a website where you uh put in code that you have written you know

6m 25s over the last three four years whatever yeah okay so and the idea is that I can go and see how many different projects you have done okay okay and GitHub has this really nice uh a picture they put up on GitHub showing when was when were the various times in the last one year that you went and did something added some uh new code right it's called the activity profile I think activity Matrix profile whatever if you go to anybody's you know what we'll put naveen's GitHub profile in the description go check out his activity Matrix so when I look at a GitHub profile and I see a lot of green dots where each dot represents one time

7m 05s you added code and I see that over the last one year over the last four years then I know that you have been doing so much programming whereas a candidate who hasn't done that much programming right ghosted through engineering and then now suddenly all the submissions were done by just copying from somebody else if I go and look at their GitHub profile there's just going to be a bunch of green dots in the last one week after they saw my requirements and nothing else right because this is a costly signal yeah they cannot reproduce it in one week they have to have done it over four years yeah right you can't fool Naveen so in fact the

7m 49s costly word here is important right A lot of people like to say things okay but you going around telling people I am powerful I am important is not good enough right if you want to say you are powerful go and buy a billboard on the busiest intersection saying happy birthday to the local leader then you are powerful that's a costly signal right yeah okay yeah politics is full of costly signals by the way okay all kinds of politics local national International everything yeah I can see that now even business is full of costly signals right why do sales people take customers to the fanciest restaurants and like spend like crazy why does Elon Musk why does

8m 35s Elon Musk buy Twitter hmm just but uh why is the I mean Customer Center many companies will have which has like extremely fancy building the latest technology and really fancy stuff going on right it's just signaling to the customers that we are a successful company we make a lot of money so you should be buying from us not those other guys who are not as successful why do some people have golden Thrones uh as in commodes Thrones never mind see conspicuous consumption where you know you are showing the world how much you are spending is basically costly signaling you're signaling to the world that you are rich and implying that you are powerful but this isn't just for

9m 26s people also even country level this happens right international relations we sanction Russia I mean Europe is suffering quite a lot because of the sanctions but you are signaling to Russia that you know what we are willing to undergo this cost we are willing to have a miserable winter just to make your life difficult because you broke one of our rules right that's costly signaling I mean just telling Russia oh don't break our rules don't break our rules and then when they break your rule then pass a resolution yeah that's resolution is you know talk is cheap yeah but you actually are willing to tighten your own belt just to cut down Russia's uh sales of oil that's a costly

10m 14s signal right did you think you would be learning about International diplomacy on a topic that started with peacocks and Burj Khalifa what do nuclear bombs have to do with peacocks right uh we will put a link on what nuclear strategy has to do with courtesy signals nuclear strategy and costly signals I do recall when you said that I recall a specific Twitter exchange that happened between two heads of state A couple of years ago I think that might be related somewhere but uh I have a different question my question is how does it matter to me why should it matter to me so you have to understand that everything you do is a costly signal okay when you buy an

11m 00s iPhone that is some sort of a signal yeah and you uh you know Twitter has made a bit of a mess as in the Blue Tick used to mean something it was a signal of one sort since that this is an important well-known person and now if you can buy it for eight dollars suddenly the value of the signal has gone down or maybe it has changed that this is a person willing to spend eight dollars on this that gives a different signal right so suits wearing suits is a signal when people in the Bombay weather go around wearing a suit and a tie that's a signal saying something yeah but also if somebody shows up in a very

11m 39s fancy office to a board meeting in jeans and a t-shirt that's also a signal that is saying I made millions of dollars in software and I don't care for your rules yeah or if you come in wearing the same gray sweatshirt or hoodie for every single day of your life in every single meeting regardless of whether you're earning 10 or 10 billion dollars that's also a very costly signal in fact there's a related concept called counter signaling okay what that means is that the really really high Prestige people don't need to signal in fact they will not signal because they don't want to be mistaken for the kind of people who need to Signal Labs Okay so uh I mean if you

12m 28s plot a curve you will see that as value goes up the signaling first goes up and then it falls because later on uh the most fancy ones like to keep things little chilled uh right that's where the most expensive cars do not have logos okay I mean you don't need that signaling yeah so uh in fact the right phrase to use there is that money talks but wealth whisperse oh right so money does signaling wealth does counter signaling right very very smartly put Money Talks wealth Whispers yeah the smart kids in class are always like teacher teacher teacher the smartest kids don't need to impress the teacher yeah right so I can hear my bank account

13m 17s screaming at me so very interesting points about signals and costly signals and counter signals there which brings me to the question what signals or costly signals or counter signals you are projecting tell us all about it in the comments below my name is shrikanth this is Naveen and this was future IQ thank you