Saturday, 8 September 2018

This bride needs a crash course in signalling

Back in 2014, I wrote a post about why weddings are expensive, and the main explanation comes down to signalling:
Why are couples willing to pay such high prices for wedding dresses? It may be because they are signalling as well. They are trying to reveal two items of private information to their wedding guests (friends, family, etc.): (1) the quality of their relationship; and (2) their social status.
Starting with (1), guests don't know the quality of the relationship that is about to be formalised, but the couple does (hopefully!). Does this create market failure? That is, can the couple take advantage of this information asymmetry to their advantage and to the detriment of their guests? Maybe, if we consider wedding gifts. Guests would probably give less valuable gifts if they believed the marriage wouldn't last (i.e. if the marriage is low quality), than if they thought it would last a long time (i.e. high quality). So, if guests can't be sure about the quality of the marriage, then they may assume the marriage is lower quality and buy less expensive wedding gifts (or no gift at all) as a result. So, high-quality couples need to find some way of signalling their quality, and this may be through the cost of the wedding. This may be an effective signal, because it is costly (obviously), and more costly to low-quality couples since they may expect to marry more than once over their lifetime. So, lower quality couples may be less willing to spend a lot on their wedding than high quality couples.
What about (2)? This isn't an adverse selection problem at all, since there is no market that will fail. However, there is still signalling here - the couple may want to signal their social status to the community. Higher social status is linked with wealth, which means that couples with high social status are likely to be able to afford a more lavish wedding celebration than couples with lower social status.
Which brings me to this story from a couple of weeks ago:
 "Susan" is causing quite the debate online after posting a bizarre Facebook rant about her now-canceled wedding. Yup, the couple called off the wedding just days before their I dos, after their guests refused to pay the $1,500 attendance fee Susan was demanding in order to pay for her CAD $60,000 ($46,020 USD) dream wedding.
In her long-winded, expletive-filled explanation, the (former) bride accused her friends and family of ruining her marriage and her life. “How could we have our wedding that we dreamed of without proper funding? We'd sacrificed so much and only asked each guest for around $1,500. We talked to a few people who even promised us more to make our dream come true," she reportedly wrote on Facebook.
Note the quote from my earlier post above. If wedding guests don't know about the quality of the relationship (it is private information), then having an expensive wedding is an effective signal of quality. It meets the two criteria for being an effective signal: (1) it is costly; and (2) it is costly in such a way that lower-quality couples would not attempt it (it is more costly for lower-quality couples, who may get married more than once in their lifetime).

However, having an expensive wedding but not paying for it yourself is not an effective signal, since it is no more costly for a lower-quality couple to do than for a higher-quality couple. In fact, it is more likely that a lower-quality couple would ask the guests to pay for the expensive wedding than a higher-quality couple. The invitees were probably right not to want to pay for "Susan" to have her dream wedding.

[HT: Marginal Revolution]

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