Friday, June 19, 2009

Why Signals Are Shallow

Robin Hanson:
A boss who has known you for years may not promote you unless you get a better degree, even if that teaches you nothing useful for your job. He might not hire you without that degree, even if knows and trusts folks who have known you for years. Why do people who know us well care so much about such shallow signals?

Your boss doesn't just want high quality subordinates; he wants his boss to think he has high quality subordinates. Actually he wants his boss to be happy about it, which requires his boss be happy about it, etc. We all want to affiliate with high status people, but since status is about common distant perceptions of quality, we often care more about what distant observers would think about our associates than about how we privately evaluate them.
To which Arnold Kling adds:
The idea is that in a large, complex society, shallow signals may become more important than accurate information. It is a really profound insight, deserving of more development. For example, in banking, it may explain why "AAA-rated" became more important than truly having a low risk of default.

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