In 1975, at almost the same time that Akerlof was trying to get his paper on asymmetric information published, Amotz Zahavi published his work on what he called the Handicap Principle. The basic ideas are amazingly similar, though Zahavi was an Israeli biologist who studied birds (babblers) in the desert.
Why do peacocks have those insane tails? They are beautiful, but extremely heavy, and liable to get caught in brush when a peacock tries to escape a predator. Natural selection would suggest that peacocks with longer and heavier tails would be more likely to be killed off, and would leave behind fewer offspring, and that eventually the tails would disappear, along with the males that bear them.
The standard answer used to be that the peahens (those damn females!) somehow acquired a taste for gaudy decorations on their males, and that this set off a “run-away” competition among the peacocks for ever longer and heavier tails. This ended when the benefit (in terms of more babies) of having a longer tail just equalled the cost (in terms of shorter life, and hence fewer babies).
The problem with this explanation is fairly obvious, once stated: how did the whole process get started? Females who prefer to mate with long-tailed males are asking for trouble. Their babies, if male, go through life with a heavy handicap. Natural selection should ensure that these females leave behind fewer descendents, relative to females with less expensive tastes, and they eventually go extinct, along with the tails that they liked so much.
Zahavi offered an alternative answer- one that was initially rejected by leading biologists like John Maynard Smith and Richard Dawkins, though it has now become the new textbook answer.
He argued that the tails were a form of advertising. The males carrying those tails were signaling to females: “Look at me. I am carrying this heavy handicap, and yet have reached maturity. My genetic endowment must be terrific.”. Again, the tails are beautifully symmetric, and the peacocks display their tails when wooing females. Any parasitic infection or disease could damage the tail in a way that would compromise its symmetry and lustre, and be easily visible to the female. Hence, the male is also demonstrating that he is free from infection, and so has a robust immune system. This is a signal that those who are less fit, genetically speaking, cannot afford to mimic. An unhealthy male that tries to grow a long and heavy tail will quickly become dinner.
Hence, the tail is nature’s solution to a problem of asymmetric information. The females need to judge the genetic quality of the males, but the genetic fitness of the males is unobservable. Unlike in the case of the second hand cars, not even the seller (the males) can easily know the condition of the goods. In such a case, a female that can detect reliable signals of genetic fitness- ones that inferior males would not find it worthwhile to mimic- is likely to have a higher proportion of offspring by “high quality” males than females who cannot detect such signals. Their offspring are likely to flourish, inspite of their handicap, and the genes that enable the females to discriminate among males will grow more common in the population. As such females come to grow more numerous, males find it necessary to display their fitness in ever more blatant manner, just as in the previous model.
The Zahavi’s book is wonderful. More on this, later.