Cheap Talk vs. Costly Signals#
Why anyone can say “I’m loyal” — and why that’s the whole problem
Three ideas, before anything else#
- cheap talk
- costly signal
- separating vs. pooling
Get these three straight now — the scenario in a minute uses all of them.
Cheap talk#
Saying “I’m looking for something real” costs nothing and risks nothing — true or not, nobody pays for saying it.
Economists call this cheap talk: a claim that’s free to make and free to be wrong about.
Costly signal#
A half-marathon medal, photographed on an actual trail, is hard to fake convincingly — you’d have to actually run the thing, or find someone who did and borrow it.
That’s a costly signal: informative because faking it would have cost something.
Separating vs. pooling#
| Aspect | Separating | Pooling |
|---|---|---|
| What happens | different people send different signals | everyone sends the same signal, regardless |
| What you learn | something — the signal sorts people | nothing — it doesn’t distinguish anyone |
| Dating example | only actual runners post race photos | everyone’s bio says “I love to travel” |
Now, back to the point#
Two people. Same claim. Different evidence.
Two profiles, same claim#
Jordan and Sam both write: “I love hiking.”
| Detail | Jordan | Sam |
|---|---|---|
| Claim | “I love hiking” | “I love hiking” |
| Evidence on profile | a marathon finisher photo, muddy boots, a trail-running watch in three other photos | one sunset photo, no other trace of it |
| Cost to have faked it | high — you’d need the race, the gear, the tan lines | close to zero — one photo, borrowed or staged |
What that does to the claim#
Jordan’s claim separates: only someone who actually hikes ends up with a race bib and gear in three unrelated photos. It’s a costly signal.
Sam’s claim pools: it’s exactly what anyone would post, whether or not it’s true. It’s cheap talk, dressed as detail.
The claim was identical. The cost of making it wasn’t. That’s the whole theory.
Tutorial 3#
Ten fictional profile claims. Sort each into cheap talk or costly signal — and be ready to say what would have made it expensive to fake.
What today doesn’t settle#
A costly signal earns your trust in the claim. It doesn’t tell you the claim was worth checking in the first place — Jordan’s medal proves discipline, not whether you’d get along on a Tuesday night.
Week 12 comes back to this too.
See you next week#
Week 4: Red Flags & Adverse Selection