AppId is over the quota
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Recently my wife and I went on an epic hunt to uncover everything possible about baby formula. We scoured more Web sites than I’d like to admit to and learned about all the options: powder, liquid, milk-based, soy, D.H.A.- and A.R.A.-fortified. (I’m still not clear on what A.R.A. is, exactly.) Then we learned that none of it actually matters. Since the Infant Formula Act of 1980, the F.D.A. makes sure that all formula is pretty much the same, no matter which one you buy.
Deep thoughts this week:
1. Big companies pay oodles to send signals of strength.
2. It seemed that signaling would end in the age of Amazon.
3. But it has only increased.
4. That’s a good thing.
Adam Davidson translates often confusing and sometimes terrifying economic and financial news.Despite knowing this, I still insist on paying twice as much for Enfamil, which its maker claims is “scientifically designed.” (Aren’t they all?) I splurge because Mead Johnson is a 107-year-old company that has been promoting a single baby-formula brand for more than 50 years. I figure that it’s less likely to squander its name by skirting the rules or engaging in shoddy manufacturing than a company with less to lose. This peace of mind costs me about $7 per day. Economists have a name for these cues that companies employ to convey their hidden strength: signaling. We see various forms of it everywhere, from the wristwatches of wealthy bankers to the nuclear arsenals of developing countries. Technology companies keep massive financial reserves to show potential competitors that they won’t back down in a fight. Why do people pay so much, in dollars and sweat, to go to a top-tier college? It might offer a superior education, but it definitely shows future employers that they are smart and willing to work hard. (Though it can also suggest that the student comes from a wealthy background. That, for some, is an even more powerful signal.) Sixty years ago, Edmund Hillary and Tenzing Norgay signaled their perseverance by climbing Mount Everest. Now, for upward of $60,000, relative amateurs can achieve the same thing, albeit with the help of state-of-the-art breathing equipment, climbing gear and a team of Sherpas. Signaling is also often associated with consumer goods. In many ways, it was useful. How does anyone really know that they’ve picked the right baby formula, soda or car? They don’t, and manufacturers know that. That’s why our economy is filled with highly promoted branding campaigns that, however superficial or annoying, can be enormously helpful guides. In 1982, Coca-Cola demonstrated its market power with a star-studded commercial, featuring Bob Hope and Joe Namath, to introduce Diet Coke. Pepsi recently paid a fortune to hire Nicki Minaj as a spokeswoman. Even for consumers who don’t listen to her music or trust her expertise in the carbonated-beverage sector, the mere act of paying for a pop-star endorser sends a subconscious signal that their product is so successful that, well, they can afford Nicki Minaj. It also signals that the company is too heavily invested to turn out a shoddy product. For many, that’s a reason to choose the soda over the generic stuff. In a way, the Minaj endorsement surprised me. I had assumed that kind of signaling was destined to be a relic of the pre-Internet age — a time when people couldn’t pull up an objective review on their phones while perusing the soda aisle. According to some economists, however, signaling seems to be increasing throughout our economy. Why are we listening to signals when we can do the research ourselves? The Internet is, among other things, a massive, chaotic marketplace. Too much information, it turns out, is a lot like no information. “If we researched every single purchase, we wouldn’t have time to make any purchases,” says Anna Kirmani, a marketing professor at the University of Maryland. “I have better things to do with my time.” Signaling can be a shorthand to identify whom you want to buy from. That’s why we may need it now more than ever. Hemant Bhargava, a business professor at the University of California, Davis, told me that he has been thinking about signaling as he decorates his new home. Though he is looking for good deals, he still worries about vendors outside the major brands. Bhargava recently found one chandelier for $750 on Amazon and $650 on a cheaper site. He went with Amazon. “The lower price, it bothered me,” he said, indicating that he saw the discount as a signal that the company was willing to cut every cost imaginable. He ended up paying an extra $100 for some peace of mind. Adam Davidson is co-founder of NPR’s “Planet Money,” a podcast, blog and radio series heard on “Morning Edition,” “All Things Considered” and “This American Life.”
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