by Adam Juda on Sunday, June 7, 2015
In How To Price an Elephant, I looked at how we could apply pricing concepts to an animal. While I think there is much to learn through this approach, I think the reverse is even more interesting. What pricing techniques can we learn by observing wild creatures? Signaling is probably the most obvious economic concept known to biologists. In Paying with Coupons: A Most Heinous Act, I explained that some animals invest significant energy and accept high levels of risk in order to demonstrate their value to the opposite sex. Many animals have found this strategy to be worthwhile, but wouldn't it be advantageous if an animal could send a signal without using much energy or taking on significant risk?
Animals can and do. They cheat by signaling qualities that they don't possess. Sometimes cheaters do, in fact, win. As an example, the coral snake has invested many millions of years evolving the ability to create extremely venomous toxins, but the king snake has found a simpler path to warding off would-be predators. It simply began to look more and more like its highly poisonous relative. Eventually predators began to confuse the two and learned to leave the king snake alone. The animal kingdom is rife with imposters who use mimicry to signal that predators should beware. Don't believe me? Read up on the viceroy butterfly for yet another example.
In much the same vein, some species of crabs have learned the value of dishonest signaling as well. Some have the ability to regrow missing claws. Despite the fact that these regrown limbs are relatively weak, they still appear as imposing as the limbs they replaced.
Dishonest signaling is often found in humans as well. Though extreme cases may constitute fraud or even war crimes, the potential benefits can far exceed the cost.
As a resident of southern Florida, I come into frequent contact with people who have found great success through the use of dishonest signaling. I know a technical consultant who describes himself as the author of two books, yet (as far as I can tell) neither has ever been completed [note: you can buy a copy of my book on how to set a price for software at any time - no false signaling here!]. I often see a local businessman who attends all of the important gatherings, dresses well and drives an expensive (leased) car, yet he never seems to have two nickels to rub together. I've even seen countless self-professed programming experts who proclaim their awe-inspiring skills, yet are unable to code their way through a simple fizz buzz exercise.
In a day and age where image is everything, it's critical that customers learn (or be taught) to distinguish between honest pricing signals and dishonest ones. Should consumers fail to be able to differentiate between the two, the market will become dominated by shysters selling low quality goods at premium prices. Honest vendors take note!
My blog is an effort to signal that I know a lot about pricing. Anyone can read through my writings and judge the content by any standard he sees fit. Read some more articles, and if you're convinced that I know what I'm talking about, feel free to contact me for a pricing consultation. Want to hire a different consultant? Great! How do you know he has the skills you need?