A couple posts ago I wrote about some of the ridiculous advertisements I’ve seen for the luxury apartment complexes in our town. Not all advertising is bad, I argued, and even some advertising that went beyond simply conveying factual information to the consumer had a purpose in society. Namely, it could allow a company to “signal” something about its product efficiently to the market. The problem is that sometimes advertisements try to signal something that isn’t quite true true (the right beer gets you babes, for instance), and the market doesn’t seem to correct this flaw as theory would predict. Worse yet, sometimes the thing that’s being signaled is actually detrimental to society in the aggregate.
A recent article published in the New York Times a few weeks back about issues of class at Harvard Business School opened my eyes to another way that the economic concept of “signaling” can go very, very wrong.