Charging a $100,000 membership fee for an online dating site could be a great way to profit off men who want to signal their wealth to potential mates. But the profits from the Secret Diamond Club will come from women who don’t realize that the “secret” part of the club is there is almost no chance of meeting a man.
Here is how the club works. Female users upload three pictures of themselves: one head shot, one full-body and one optional. The shots are then (supposedly) judged by a panel of twenty men and women on the level of attractiveness. That level of attractiveness then determines how much the woman pays for the site. The most attractive users pay the least ($10) and the least attractive users pay the most ($50).
To “seriously increase anonymity” women can buy a VIP membership that hides their profile from all men except full-paying members.
Male users pay $100 to join the club that allows them to see the profiles of all non-VIP women. In order to communicate with all women, and see VIP women’s profiles, men have to pay $10,000 per region, $50,000 per continent (North American or Europe) or $100,000 for the whole world.
The press release for this new club promises that the women are among the most beautiful in the world (although I have to say that the women currently on the site look just like the rest of us – all beautiful in our own way) and the men are all “prestigious entrepreneurs, celebrities and members of the social elite” (I have no idea if that is true because they are all hidden, even to women who are members).
The site looks like it is using a signaling mechanism and in fact they say as much when they offer women a guarantee that the men they meet “have the money and success they say they have” even thought they do not screen their members to make sure they haven’t just spent every cent they had for the service.
The economic theory that really applies here, however, is not signaling but rather tournament theory in which effort is a function of an uncertain prize.
Imagine there are two players in a tournament that offers a large prize to the winner and a small prize to the loser. In theory as the spread in the prizes increases the players should work harder to win the tournament. It is therefore in the best interest of the tournament organizers to increase the spread in order to encourage players to exert the most effort in the game.
Increasing the spread is costly for the tournament organizers, however, because they have to pay the prizes. This creates a balancing act between offering a big enough prize spread to encourage maximum effort without bankrupting the program.
In the Secret Diamond Club the players are the women and the prizes are the men. The spread for winners and losers is the difference between meeting, and not meeting, a wealthy man.
By setting their male membership fee extremely high, the site owners have effectively increased the expected spread in prizes in order encourage women to increase their effort – which here just means more women paying membership fees.
But here’s the kicker – in this tournament the organizers don’t have to pay the prize. In fact, the probability of there being any prize at all is extremely small since the men they claim to attract can easily find other ways to meet and signal their wealth to women.
The fact that there may be no prize doesn’t matter in this game because the site organizers have taken advantage of the desire for anonymity to “hide” male profiles. They can deceive women into thinking there is a non-zero probability of winning.
The real proof that I am right about this is reflected in how small the membership fee is for women. The amount women should be willing to pay to enter the site should be increasing in the probability of meeting a wealthy man in the same way that the price of a lottery ticket is increasing the probability of winning a monetary prize.
The observation that in this lottery the ticket price is very low, even though the prize is big, says that the probability of winning a prize is very close to zero.
The irony here, of course, is that the organizers themselves have lost out on the opportunity to profit from a signaling mechanism. If they had set the female price a little higher they might have signaled to women that there was a higher probability of meeting a wealth man and made themselves a higher profit in the process.
Oddly, however, they chose to offer a less profitable signal to women – the graded price scheme which they are clearly using to convince women that they are so attractive they will be able to find a man on the site.
(Let’s face it, would you join if they came back and told you the panel thought you were a dog?)
I am going to take this opportunity to offer myself up as a scientific advisor for a dating service. It really seems that a little economic foresight could go a long way in making these businesses profitable.
Thanks very much to Brooks Kaiser for pointing me in the direction of the Secret Diamond Club.