The economic theory of rainbow logos

Let’s talk about these rainbow logos that big companies tend to adopt during Pride month.

Rainbow versions of 15 corporate logos

Source: Buzzfeed

Many people have described rainbow logos as an example of “virtue signalling”.  “Virtue signalling” is a buzzphrase among pundits and internet commentators, used to mean “lip service” or “empty gestures”.

And this is so frustrating, because “virtue signalling” is a legitimate economic concept that legitimately applies to the situation.  But virtue signalling does not mean what people think it means.  What virtue signalling actually refers to is good.  And if people understood virtue signalling correctly then it would provide a useful tool to distinguish gestures that are meaningful, and gestures that are empty.

Virtue signalling and cheap talk

In economic theory, signalling is a method of credibly conveying information about yourself.  “Virtue signalling” is a kind of signalling, in which the information you are conveying about yourself, is that you are virtuous.  Please note, signalling is credible.  If someone is virtue signalling, then that means we have good reason to believe that they are actually virtuous.  If it’s an “empty gesture” and doesn’t give you a good reason to believe they are virtuous, then “virtue signalling” is not the correct term.

I hear you asking, “What should I call it when people make empty gestures that pretend to virtue?”  In economic theory, that might be called cheap talk.

A correct understanding of signalling and cheap talk is important, because economic theory lays out specific criteria that we can use to distinguish between the two.

The main criterion for signalling, is that a signal must be costly to create, if the information it supposedly conveys is untrue.  Usually when we talk about signalling, it’s also costly when it conveys true information, but the critical point is that it’s not as costly.  Information conveyed through signalling is believable, because liars would have to shoot themselves in the foot to lie.

Cheap talk, in contrast, is communication that is cost-free, non-binding, and unverifiable.  Generally, cheap talk should be ignored to the extent that the person communicating has interests that conflict with your own interests.

(By the way, this is my second attempt to explain what signalling theory actually is.  The term “virtue signalling” was popularized in 2015 by someone who didn’t understand what it was, and was initially adopted by alt-right people to criticize SJWs.  And because SJWs aren’t well-informed about economic theory they just accepted that virtue signalling was bad.)

The rainbow logos

Let’s think critically about those rainbow logos.  Are those logos only conveying a message, or are they also doing something?  One possible answer is that the logos materially help LGBT people, for example by normalizing LGBT people or chasing off haters.  On the other hand, you might say that’s not doing much.

If the rainbow logos are conveying a message, what is that message?  The message seems to be something to the effect of “this company is LGBT friendly”.  Perhaps more specifically, we could take this to mean “This company supports its LGBT employees”, or “This company supports its LGBT users”.  One issue, is that “support” is not a binary.  For example, even if a company is supportive of LGBT employees, we might still complain that it’s still exploiting their labor.  So the precise information being conveyed is kind of nebulous, and depending on the level of support you care about, you might find the rainbow logos totally useless.

But let’s consider our main criterion for signalling.  How much does using a rainbow logo cost to the company?  One possible cost is if the company loses users who don’t like the rainbow logo.  On the other hand, this cost is offset by increasing the engagement of users who do like the rainbow logo.  You could argue that rainbow logos would have been costly in decades past (when they weren’t really a thing at all), but are no longer costly.  This casts doubt on the value of rainbow logos as signalling devices.

But losing users who don’t like rainbow logos, is a cost they pay whether or not the signal is true.  The question is, if the information conveyed by the rainbow logos is false, how much more does it cost?  One possible cost, is that if the company leadership is not very LGBT friendly, perhaps it costs more for the PR department to convince them to let them make a rainbow logo.  If the leadership just flatly refuses, then this is effectively an infinite cost. So yeah, I guess the logos indicate that the leadership isn’t so unreasonable as to block the PR department from doing its job.  hooray…

Another possible cost, is that if a company adopts a rainbow logo, this exposes them to accusations of hypocrisy.  Of course, people are accusing corporations of hypocrisy all the time, but maybe it’s a bit more likely if they draw attention by creating a rainbow logo, and people perceive them as being unsupportive of LGBT workers/users?  I’m rather skeptical.

My conclusion is that rainbow logos probably do not constitute signalling.  I don’t think it counts as cheap talk either, because cheap talk is cost-free, and these rainbow logos seem to actually benefit the companies that make them.

This is not a shocking conclusion, but I think it’s important to think it through, so that we may go through the same thinking process when it comes to other gestures made by companies.  Is the gesture materially helping people?  Is it sending a message?  What does the message cost?  Would it be difficult to persuade company leadership to make this gesture?  And would if the gesture is hypocritical, would we be able to call it out?


  1. says

    The message seems to be something to the effect of “this company is LGBT friendly”.

    Facebook sure as hell is not trans friendly. A significant portion of trans people are forbidden from even having a Facebook account unless they want to use their legal name that does not correspond with their gender identity (in many countries, changing one’s legal name is time-consuming, expensive or even outright impossible.)

  2. ridana says

    Oh dear, it looks like corporate logos are mostly lost on me. Without the name in the logo, I only recognized YouTube, Twitter and the White House (have they forgotten what the T in LGBTQ+ stands for?). It was even worse on the Buzzfeed page. Many, like (Red) I have no clue about the companies even when they’re named.

    I think “virtue signalling” is irrevocably tainted now, in any case. I view the logos above as pride-washing, the same as green-washing and pink-washing. The only meaning in it is evidence that it’s mainstream enough now that it can be co-opted, so I guess that’s a good thing? Maybe? Not sure.

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