Signalling: How Much Does it Cost to Inspire?

Anyone who drives a car in Nigeria should have a fair idea of the trials and tribulations faced when trying to find a mechanic that won’t turn you into his personal ATM. You have no clue how much a compressor costs, or if that’s even what is damaged or if the mechanic will get you the ‘tokunbo’ instead of the original…or worse still, take your money and not replace it.

In such cases, information is asymmetric – the mechanic has far more information regarding the transaction than you and I. He knows what needs to be fixed and the cost, but you don’t. Economists believe that such information asymmetry leads to rational distrust, which can cause markets to break down.

Nobel-winning economist Michael Spence discovered a clever way to bridge this information gap, through “signalling”. For example, a mechanic who wanted to prove his integrity would be confident enough to give the customer an assurance that if the product breaks down soon after repair, he would replace and service it for free. This sends a clear signal that the mechanic believes in the quality of his work. The promised free replacement/service, in this case, is called a “costly signal”.

Anyone who has had to apply for a formal job will be intuitively familiar with the concept of signalling. Employers want competent, capable, team-oriented employees, but this is difficult to judge from a couple of interviews. Prospective employees have a decent idea of their abilities but employers don’t – because as an intangible trait, it’s not easily observable. So aspiring employees must prove themselves by spending 4 years or more in a rigorous educational program. In other words, your ability to endure ‘suffer-suffer’ at university is what serves as a signalling mechanism to employers that you will…well, suffer more for them.

Signals are not perfect, but in a world full of contracts, partnerships and relationships, they do a pretty impressive job of filtering out the bad from the good – the ‘Pinocchio’ from the ‘ethical’, and the ‘olodos’ from the ‘efikos’. In a world full of far too much information, you need this filter.

An entertaining example of signalling is an incident that occurred last week when a lady informed the guy she was dating that she would be announcing him on Twitter. If she really was the only one he was talking to, she presumed that he would have no issue with the publicity. Clearly, publicity posed a great cost to him if he was talking to other girls on Twitter, but the cost would be minute if he wasn’t. Unfortunately for her, he refused on the grounds of ‘privacy’ and predictably, they broke up.

The finance world gives us another example of costly signalling. When a company initiates an initial public offering (IPO) of stock and the owner retains a large proportion of stock, it signals his/her optimism about the company’s future profitability/value. The owner of a failing firm would struggle to imitate this signal because it is too costly to keep the junk stock.

So what happens when signals lose their ability to be costly and in the process, lose their effectiveness? When we lower the cost of obtaining a signal, it becomes ineffective. It opens the floodgates for anyone to enter the market and cause uncertainty.

When Nigerian schools fail to put students through rigourous and appropriate education, the point of being a signal is ruined. The extra headache of trying to sort out competent employees from slackers is one reason some firms unfairly discriminate against graduates from Nigerian schools. Some firms out-rightly state their interest in only students from ‘British Schools’. Presumably because such schools provide a signal that these employers find credible enough.

The perversion of modern day christianity is another example of what happens when the cost of signalling falls. For the title of a christian to be a good signal, it would have to be costly. One would have to demonstrate sacrifice that not everyone could pull off. In the past, identifying as a christian would have gotten many people killed. Thankfully, that is not the case in many parts of the world today. But given that the criteria for being a christian is simply identifying as one, this significantly lowers the cost and allows the fake to mix with the real and as a consequence, we have pastors that sell ‘spiritual’ pens to help students pass their exams.

Inspirations in Nigeria are another example of how signals can lose their effectiveness once the costs of obtaining them are lowered. Becoming an inspiration requires an arduous process of integrity, hard work and diligence. But what happens when one replaces this process with wealth? Nigeria happens.

In Nigerian society, the signal for inspiration has shifted from one’s notable effort through action to simply obtaining wealth, irrespective of the means. This lowers the cost of obtaining such a signal.

There’s a cost to joining government and leaving without engaging in corrupt practices – you forfeit the opportunity to magically acquire G-Wagons or mansions in Abuja. However, when wealth becomes a signal of inspiration, you end up with corrupt public officials honoured and praised for simply becoming billionaires – by the Grace of God, of course.

Similarly, plagiarising someone else’s work is relatively low-cost whereas coming up with original material is much more difficult. However, when inspiration becomes about who obtains wealth, regardless of the means, then purchasing a house in Banana Island apparently gets one into the inspiration Hall of Fame. The means become irrelevant.

The danger in these examples is that they lower what it should cost to be termed an inspiration. They essentially devalue the essence of being an inspiration. It’s much like calling a fellow a graduate simply because he holds a certificate with his name on it, even if he did not attend any school. Things get tricky when anyone can obtain a certificate – same goes for being called an inspiration.

A lack of understanding of the cost implication of signalling leaves you – the citizen, worshipper, employer, or customer – vulnerable to whoever can convince you of their genuineness without actually having to prove it.

So whether you’re deciding to trust that mechanic or politician, listening to your pastor/imam, employing a new worker, or giving awards for inspirations, you might want to make sure you’re focusing on the right signal. As my Nigerian brothers will tell you, ‘khaki no be leather’.