Planet Money
8:51 am
Wed May 16, 2012

How Nicki Minaj, Telly Savalas, And A Monkey Can Help Confused Shoppers

Originally published on Wed May 16, 2012 9:23 am

In his latest column for the New York Times Magazine, Adam Davidson writes about a peculiar thing companies do to get our attention: they burn money on frivolous ads. Economists call it "signaling," where a company shows its strength by spending an eye-catching fortune, on, say, a pop star:

or several stars:

or even a monkey:

None of these ads reveal a thing about the products (unless you think Nicki Minaj has better taste in soda than Carol Channing). What they do reveal is that the company has money to burn.

Wasteful as it may seem, many economists agree that these ads send a valuable signal to consumers. They show that the company is confident in its product and knows some customers will come back for more. If it were wrong, those costly ads would soon put it out of business.

Do we still need signaling in an information age, when anyone can look past the flashy ads and pull up product reviews on their smart phones? Read the full column here to find out.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.