Book Review: Codes of the Underworld

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applied signaling, book review, signaling

I recently finished Diego Gambetta’s Codes of the Underworld: How Criminals Communicate.  For those looking for a more academic take on signaling (particularly from a sociological point of view) it’s a great find.  As I previously mentioned, Gambetta uses the extreme case of cooperation amongst criminals to tease out more general dynamics of trust, signaling, and communication.  The Mafia can be considered a “hard-case” for theories of signaling trust; given the extreme incentives for criminals to lie and the lack of credibility they wield given the very fact that they are criminals, how is it that criminals manage to coordinate their actions and trust each other at all?  By understanding how trust works in this harsh environment we learn something about how to signal trustworthiness in broader, less restrictive environments.  As Gambetta notes:

Studying criminal communication problems, precisely because they are the magnified extreme versions of problems that we normally solve by means of institutions, can teach us something about how we might communicate, or even should communicate, when we find ourselves in difficult situations, when, say, we desperately want to be believed or keep our messages secret.

The book is a great example of studying deviant cases or outliers, particularly when the area of study is not well worn.  This is a valuable general methodological lesson.  We are typically taught to avoid outliers as they skew analysis.  However, they can be of great value in at least two circumstances: 1) Generating hypotheses in areas that have not been well studied and 2) Testing hypotheses in small-N research designs, where hard cases can establish potential effect and generalizability and easy cases suggest minimal plausibility.

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Friday Signaling Roundup

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applied signaling, signaling

Here are a few quick signaling items for your perusal.  I will try to do a similar roundup each Friday if I’ve stumbled on enough items throughout the week.  Enjoy!

• How to Signal That You Are Marrying for Love? It’s tougher than you might think.  Some suggest using a pre-nuptial agreement to signal one’s love and affection instead of their love of money.  If one is truly marrying for love and not money they should have no problem signing a pre-nup if they are the less-wealthy of the pair.  However, the pre-nup may act as a signal from the wealthier of the two parties that they have reason to believe that the marriage will not last.  Therefore, pre-nups are likely only an optimal signal when they are suggested at first by the least wealthy member of the couple. (via Cheap Talk)
• Tyler Cowen asks the questions “Which ingredient most signals a quality dish?”:  I can’t think of one off the top of my head.  Scallions is noted in the post, and that’s a pretty good one.  I’d think that ingredients that are financially costly and/or time consuming to prepare would also signal quality.  So, higher quality cuts of meat or dishes that are slow roasted or smoked, etc.  A friend of mine once remarked, “Ah, Bean salad.  If you’ve got bean salad then you know there is going to be great desert.”  He was using the quality of an earlier dish to predict the quality of a later one.  (via Marginal Revolution)
• Can Cheap Talk Deter (PDF)? Potentially in an entry-deterrence situation, according to a draft paper by Dustin Tingley and Barbara Walter.  Tingley and Walter find that in an experimental setting, contra the expectations of their formal model, when participants were able to make a verbal threat to the first potential market entrant it decreased the instances of conflict from 83% (where communication wasn’t allowed) to 38%.  This is interesting, since the verbal threats by the defender where by definition costless (since they wouldn’t not face the challenger again and additional challengers would not know if they followed through on the threat)–meaning, they shouldn’t have revealed any additional information to the challenger.  My first thought is that in an experimental setting subjects might be revealing information through their body language or micro-expressions (which can’t be captured by a formal model) and that these signals conveyed additional information to the challenger.  But defenders where only allowed to communicate their threats to challengers through email.  The authors offer some potential reasons for the discrepant results, such as the unexpected success of early round costless threats actually signals that the defender is a savvy player and understands the game (i.e. fighting early in early rounds to deter future entrants makes sense, and therefore they are likely to follow through on the threat since future entrants will see that they fought).

The Individual Utility of Incompetence

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applied signaling, Business, management, signaling

There are many reasons why organizations (government, businesses, etc) grow dysfunctional and stagnant.  One major reason lies with the promotion and retention of less capable workers.  There have been a number of studies that explored this dynamic (for example, The Peter Principle, which theorizes that people are promoted as long as they are competent, which means at some point they reach a position of incompetence).  In general, though, the promotion and retention of incompetent workers would seem to run counter to the rational interests of the larger organization.  So why does this behavior persist?  Why are less competent workers able to retain their positions and, in some cases, obtain promotions?

One potential reason is that it is their very incompetence that is valued.  Incompetence acts as a credible, costly signal that they can be trusted by superiors looking to accumulate a power base.

Sociologist Diego Gambetta is a pioneer in the study of signaling.  In his 2007 book Codes of the Underworld: How Criminals Communicate, Gambetta uses the extreme case of cooperation amongst criminals to tease out more general dynamics of trust, signaling, and communication.  The Mafia can be considered a “hard-case” for theories of signaling trust; given the extreme incentives for criminals to lie and the lack of credibility they wield given the very fact that they are criminals, how is it that criminals manage to coordinate their actions and trust each other at all?  By understanding how trust works in this harsh environment we learn something about how to signal trustworthiness in broader, less restrictive environments.

Gambetta theorizes that one way that a criminal can signal their trustworthiness to another is through their own incompetence:

The mobsters’ henchman, so often caricaturised in fiction as an énergumène, epitomizes the extreme case of this class. If he were too clever he would be a menace to the boss. Idiocy implies a kind of trustworthiness.  […] One way of convincing others that one’s best chance of making money lies in behaving as an ‘honourable thief’, is by showing that one lacks better alternatives.  […] Incompetence is one way of telling people “You can count on me for even if I wanted to I would not be able to cheat.”

Through this mechanism, lower-level criminals can signal their trustworthiness to their bosses, since they are essentially dependent on their bosses for their economic gains given their lack of independent skill and intelligence.  This pervasive logic means that criminal organizations are likely to employ mostly incompetent criminals and that leaders will likely surround themselves with less competent lieutenants over time.

It is not hard to see this same logic play out in businesses, schools, and government.  If organizations are set up in such a way where the accumulation of loyalists is incentivized instead of performance, we should expect to see a greater number of incompetent employees relative to competent ones.  Additionally, we should see more incompetent employees advance as their “sponsor” advances.