The Economics of True Love

The economist won the Nobel Prize for his theory of signaling—which can be useful to someone wooing a mate.
  • Transcript


Michael Spence: Imagine something is a signal, which is just an activity that is visible to the buying side. Could be a lover trying to signal his dedication to the person he loves.  Which of the potential possible signals that have the characteristic that they’re visible to the other side are likely to survive in the marketplace? If I have a high quality product and issue a signal, can a person with a low-quality product issue the same signal?  If the answer is, no, then you’ve got the possibility that they are signaling.

So take the lover outside the house. This actually occurs in some cultures. It’s very costly to sit there in the cold for kind of a couple of nights. But the benefit/cost ratio, if you’re really in love with this person, is not so high. If you’re not interested, it’s much more costly. So, you can call it a signal, you can call it a screening device, they’re just flip sides to the same coin, but they have the requisite properties that there’s a differential cost net to undertaking the activity for the person that’s really interested and the person who's not.

Recorded December 6, 2010
Interviewed by Max Miller
Directed by Jonathan Fowler
Produced by Elizabeth Rodd