Monday, April 13, 2009

Dressing for Success: Signaling and Savings Rates

Small Company Culture

I like small biotech companies (less than 100 headcount) better than big ones. There are consistent differences in culture between the two types. One of them is that dress tends to be more informal at smaller companies.

Why would this be? Simple. Chances are that at the small company, everyone has some interaction with everyone else, and is able to form an opinion of competence and character based on repeated interactions. If one morning I come in with a nice suit on, no one would be impressed, because they know I'm the same slob as yesterday. On the other hand, at the bigger company employees are constantly encountering unfamiliar people, and are forced to draw conclusions based quick first impressions. The chance that your nice clothes will actually make a difference is consequently greater. The danger is that you've now moved to an evaluation based on cheaper signaling, but you have to work with the limited information you have.

Therefore, More Signalling In Big Cities

The analogy to small towns and big cities is obvious, although outside work, signals are typically intended to convey wealth and prestige rather than competence. In a large city, the vast majority of people you encounter every day are strangers, even the ones your interact with. In a small town many or most people know each other through extensive prior contact, so cheap signalling (through fashion, jewelry, or other displays of wealth) is useless. This may explain why people living in poor neighborhoods will buy expensive cars (that lots of people will see, and draw conclusions based on them), rather than saving money to move out of the poor neighborhood. Conversely, walk through a very high-end neighborhood. You won't see a lot of Lamborghinis or Aston-Martins. You will see newer model Volvos and BMWs: safe, reliable cars, because the owners care less than middle- or lower-class drivers (proportionate to their wealth) about trying to signal status.

Ethnic Admixture Makes Signaling More Difficult

The phenomenon of conspicuous consumption identified by Thorstein Veblen tends to take specific forms: sometimes it's how many horses you can bring into a marriage (post-contact Lakota), sometimes how much gold you can give away to guests (medieval Germans in the Nibelungenlied), sometimes how many canoes you can give to visiting diplomats (Pacific Northwest natives). Restricting conspicuous consumption to certain channels like this makes it easier for everyone to signal each other: you don't have to tally up a pile of diverse possessions to determine how rich the chief's new son-in-law is, you just have to count horses.

In the industrialized world, freedom of movement ensures two things: first, that people of different ethnic communities will reside in the same cities, and second, that people of different communities will eventually mix in business, socially, and romantically. Consequently signalling becomes a problem: more subtle carriers of information give way to more garish and explicit means of communicating status or intention. Anecdotally, Americans are more likely to wear clothing with writing on it than citizens of other countries (garish, explicit signalling instead of subtle cues from style and quality of dress). In addition, those pre-defined channels for conspicuous consumption signals are not the same for Anglo-Americans, Mexicans, Chinese or Iranians. If that particular combination makes you think of Los Angeles, that's because I had Los Angeles in mind when I wrote this post.

The study to do would be to establish a measurement for "bling", establish a statistical measurement for ethnic intermingling (intermarriage between first-generation ethnic community members?) and look for a correlation between the two across multiple cities. If a relationship can be shown, this can partly explain Americans' historically poor savings rates relative to ethnically homogenous countries in Europe and Asia. One suggestion to encourage saving and improve rates in the U.S. is to devise costly (i.e., inseparable and therefore reliable) signifiers of savings so that signalled wealth and prestige is pinned to individual savings rates.

No comments: