It’s for this reason that banks always used to build such impressive buildings. In the days before governments began to insure banking deposits and simply let banks collapse – such days seem a long time ago now – depositors needed to think hard about where to place their money. If they deposited their savings with a fly-by-night operation, nobody would come to their aid when the bank collapsed. Customers realise that crooks planning to run off with the money or gamble it away do not first clad their branches with bronze and marble: they’re in for the long haul instead. This is one reason, too, why you will pay more at an established shop than at a market stall if you buy a product about which you lack inside information about quality and durability. The established shop will still be there to refund your money in the case of a complaint, and that very possibility gives you an assurance that a complaint is less likely to be necessary.
Other economists have used Spence’s theory to explain enormously expensive advertising campaigns with no informational content.
Excerpt from: The Undercover Economist by Tim Harford
