As I have discussed before there seems a lot to learn about social interactions, and that includes markets, from biology. Scientists in that area have long thought about problems that concern markets. For example, how can selection work to change a population? Or how can you interpret messages when those sending the messages have an incentive not to be honest? What then can we learn from biology about signaling and selection?
An old problem in biology was the fact that animals sometimes develop exaggerated characteristics that seem too extreme for their obvious use. It makes sense for stags to have antlers to fight other stags but why the ridiculously over-the-top antlers?
Furthermore, why would a peacock have such ornate feathers? These can only increase the chance of predation. The feathers are, after all, pretty obvious to all who look at them, including things with teeth. Wouldn’t natural selection opt for peacocks who could camouflage themselves?
In a classic paper, Amotz Zahavi suggested the answer was sexual selection. The peacock wants to impress the peahens. The best way to do this is to do something that lower-quality peacocks can’t do. Think of having an elaborate plumage as agreeing to take an arduous test that lower-quality individuals won’t be able to do.
Signaling And Selection
The whole point is that the signal sent, a peacock’s elaborate plumage has to be hard to copy. If every peacock could do it it wouldn’t be anything special.
The more brilliant the plumes the more conspicuous the male to predators, and the longer the plumes the more difficult it may be for the male to escape predators or to move about during everyday activity. Hence, only the best mates will be able to sustain the handicap.Zahavi, 1975, page 211
The signal also needs to be correlated with something that those doing the selecting, e.g., peahens, value. (You don’t need to think of peahens as thinking through what they look for in a peacock, although in business those receiving a message may occasionally think it through). The signal works because it is an honest signal of peacock quality. Lower quality peacocks, e.g., sickly, slow etc.., peacocks can’t take the risk of alerting a predator with elaborate plumage. It is the very fact that the plumage hurts the peacock that allows for it to be an honest signal of peacock quality.
Signaling And Selection In Business
A lot of business involves sending signals and selections being made on the basis of these. Advertising has a lot of cross-over here. There is plenty of work about advertising sending signals of the advertiser’s commitment and general quality. When a business sends a signal you can ask if they are willing to hold to that if it hurts them. If they aren’t, then it isn’t a very convincing signal of anything much as any firm could do it. A signal has to hurt to have a greater chance of it being honest.
You can see the disadvantage accepted by the peacock or other signal sender as a test. Only the high-quality can cope with the stress. Those doing the selecting, e.g., those searching for a mate or a consumer looking for a quality business to buy from, can see who passes the test. We can think about certification process, e.g., B Corp, they must be hard to be effective. (But not so hard the firm doesn’t survive it).
Read: Amotz Zahavi (1975) Mate Selection — A Selection For A Handicap, Journal Of Theoretical Biology, 53, pages 205-214