Sunday, July 10, 2011

Signaling, Education and Skills

An interesting post by Robin Hanson.
Bottom line: If much of human interaction is signaling, then much of human investment is in ways to better signal. Businesses that signal are also willing to invest in better signals. The fact that attending school seem (sic) to cause changes in students that employers are willing to pay for does not show that school isn’t all about signaling.
From the links in the post, I thought this was an interesting reading list by Tyler Cowen. And, here's an interesting quote from Bryan Caplan's piece on the topic:
But isn't this process productive, broadly defined? At some level, sure. But as always in signaling models, there are negative externalities at the margin. If everyone signals for four extra years, this doesn't improve the quality of our signal; it just waste (sic) four years of time and resources. But that's from a social point of view. Selfishly speaking, "wastefully" signaling for four extra years can still enrich you by making you look better relative to competing workers. It's just like standing up at a concert to see better: You make yourself better off by making everyone else worse off - and burn socially valuable resources in the process.
I find these education-as-signaling arguments compelling, but I think these two quotes take it a little too far. It's true that education has a huge signaling component, but it is far from clear that education is all about signaling.

Take Hanson's example of business school, where students learn how to signal (dressing well, memo writing, presentation giving, etc.). Hanson's post suggests that these skills are mostly self serving, but that's not necessarily true. It depends on the business. Business skills can add value to potential employers, value that is not fully realized by a self-serving employee.

For example, if you go to work in a fundraising office at a hospital, it is important that you present and dress well. Otherwise, your poor signal hurts the company's bottom line (what donor wants to give money to the hospital represented by the unshaven dude in board shorts?). Employers can't have an employee around who cannot give a presentation or who dresses like a slob. In business, that's not just a signal, but because business is all about signaling, it is added value.

Update: 7/10/11 (10 pm) Tyler Cowen makes this point more succinctly than I did.

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