Fake Jewelry: What's the Big Deal?

Tuesday, January 20, 2015

Hiero II, the ancient Greek King, had a problem. He had given a substantial quantity of gold to his goldsmith for a new crown. The finished product looked pretty enough, but the king had a nagging feeling that the smith had stolen much of the gold and replaced it with much cheaper silver. Unfortunately, there was absolutely no way to tell. It was only with the assistance of the great thinker Archimedes that the king was able to determine whether he was cheated.

Since that time, there has been an ongoing arms race of sorts. Some scientists have been creating better and better tests to determine whether jewelry is genuine while others have been creating better and better fakes.

An obvious question soon arises:

Why do customers care about whether or not the jewelry that they buy is real, if it is so difficult to detect a fake?
Fancy Saphire Rings
Image courtesy of Aukna

What is the point of buying a "natural" emerald when a factory-created one may be purchased for a mere fraction of the cost?

This is not the case of a functional item (such as an airbag or a pacemaker) being replaced with an item that will perform its purpose less ably. In many cases, no person will be able to detect whether or not a given piece of jewelry is real while it is being worn.

As with many questions in the field of behavioral economics, it comes down to signaling. In Paying with Coupons: A Most Heinous Act, we examined how people spend resources in order to impress others. In this case, the only person who will be more impressed by a "genuine" article than a fake is the one who wears it.

Why such items are any more effective than a ticket to a motivational speaker and an envelope full of hundred dollar bills is a matter best left to psychologists for determination. In the meantime, grab a copy of my book on software pricing. You'll never have to wonder whether or not the information contained therein is genuine.