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If It Doesn’t Make Sense, It’s A Signal
The next time you walk past a bank, look up at the building and take note of the architecture. Most big banks have really ornate detail carved into the stone of their building. It is not as if the decoration of the structure keeps our money any more or less secure, so why would the bank invest a significant amount of resources into designing the outward appearance of the building?
To answer that question, think about the reason we choose one bank over another. There is likely some difference between them in terms of fees and convenience but ultimately, we choose our bank based on trust.
We need to believe that when we hand our hard earned money over to some stranger behind a bulletproof window- we can get that money back at any time for any reason without any issue. Unlike the old days, we can’t just take a company at their word because our grandmother grew up with the owners younger brother. These days, trustworthiness must be demonstrated. The bank has to signal reliability up front. And so they design their massive buildings and slap their name on the front. If they were planning on taking our money and skipping town, would they build such a gorgeous structure?
This, in a nutshell, is costly signaling theory.
There are a lot of examples of costly signaling that occur in nature, but I am uniquely…
