Market Signaling of Personal Characteristics

The literature on signaling emphasizes signaling by business firms and also signaling by individuals by means of gifts or consumption. But it has rarely considered signaling by individuals by means of market behavior such as buying and selling. This paper seeks to fill this gap in the literature. It presents a model of such signaling, emphasizing the distinction between endowed and purchased status signaling; explains behaviors too readily dismissed as "irrational"; and reinterprets the results of a number of experiments in behavioral economics as artifacts of signaling rather than symptoms of cognitive deficiencies or moral concerns.