When a 15-year-old Robert Torres came home in 1977 with the letters “SF” tattooed on his left hand, his horror-struck mother asked him why he’d gone and “marked [himself] for life.” The initials served to permanently identify him with the San Fers, one of the gangs fighting increasingly violent turf wars in the San Fernando Valley in the late 1970s.

Twenty years later, Torres was just coming off a yearlong stint in jail for violating his probation on previous drug and burglary convictions. But he had long since severed his connection to his old crew and told his mom that he was finally set on getting his life together. He didn’t want to go back to jail, where he had been placed in a gang unit because of the initials on his hand and had been forced to get a second tattoo reading “San Fer”—this time across the back of his neck—to prove again his loyalty to the gang. Now, on his second evening of freedom, he went in search of his ex-wife and five kids to tell them he wanted to make up for lost time.

He never made it. According to witnesses, Torres received a fatal shot to the head as he walked out of a liquor store where he’d stopped to buy some cigarettes. The killing was allegedly payback from a member of the Shakin’ Cat Midgets, a gang that hadn’t even existed when Torres got his tattoo but now considered themselves rivals to the San Fers. Torres’s killing was thought to be revenge for a drive-by shooting that had taken place a couple of weeks earlier—when Torres was still behind bars. According to an LAPD detective, Torres was “just standing on the sidewalk, not bothering anybody. I guess they must have saw his tattoo.”

It is easy to chalk up Torres’s gang markings as a costly act of youthful indiscretion and rebellion, one with ultimately fatal consequences. But such a superficial evaluation does a disservice to the sophistication inherent in these rites of passage. Torres’s tattoos had devastating consequences precisely at the point in his life when he was trying to turn things around. But some would say that is exactly what they were meant to do—pledge Torres to a gangster’s life in a credible and visible way that the less committed would never choose.

In the early 1970s, an economist named Michael Spence proposed a theoretical model that explains how people manage to go beyond cheap talk and that also, perhaps inadvertently, helps to illuminate why Robert Torres ended up with San Fer tattooed across the back of his neck (even though Spence, a very proper and vaguely aristocratic Rhodes Scholar, probably never contemplated the issue of neck tattoos).

Spence was interested in phenomena that appeared contrary to the predictions of standard economic models. Why, for instance, do prospective employees waste time at company recruiting events? It’s surely not because they’re learning much about McKinsey or Microsoft by doing so. And why do companies recruit out of so many universities that provide their students with esoteric knowledge that won’t make them any more productive in the working world?

In Spence’s formulation, hiring a worker is essentially a spin of the roulette wheel: Depending on what comes up, an employer might get a conscientious, productive worker or an incompetent, shirking one. There are plenty of steps that employers can and do take to make the hiring decision less of a gamble. They may consider, consciously or not, whether the applicant is short or tall, black or white, male or female. Based on prior experiences or stereotypes they’ve formed, recruiters may make a positive or negative judgment of what the applicant would probably be like once he or she starts showing up for work. Whether it’s legal or moral (or even correct), everyone  judges people based on all sorts of characteristics that a person is essentially born into.

Then there are the choices candidates make in presenting themselves to a prospective employer: Whether short or tall, black or white, male or female, one needs to decide whether to wear a suit or jeans, or to show up clean-cut or shaggy, or, like Torres, covered in tattoos. On a resume one can choose to offer up one’s undergraduate GPA, and mention that it was from an Ivy League institution, or one can avoid saying much of anything about one’s education at all.

It could be argued that lots of these aren’t exactly choices: Harvard chooses its students, not the other way around. Acing advanced calculus is similarly something that is out of reach for many, so not everyone can be a math major with a 4.0 GPA.

That’s correct, sort of. But it can also be thought of this way: The cost of adding a credential to a resume or presenting oneself in a particular way at an interview is higher for some applicants than for others. In a sense, the “cost” for many of getting into Harvard and making it to graduation is infinite—it’s just not within the realm of possibility. For a math whiz or a music prodigy, it may not be that difficult to get in and coast through whatever the Harvard curriculum might throw at them. A driven, conscientious, and reasonably bright young person might also put together a Harvard-worthy college application without too much trouble, relatively speaking.

In Spence’s model, the same attributes that make it relatively easy to get a Harvard degree—math wizardry, drive, diligence—are also characteristics that make for a productive employee. If that’s the case, then companies will do well to hire Harvard math majors, even if it turns out that no one learns anything of practical use, or even any math, at Harvard.

Why? Because a math degree from Harvard is seen as a credible way of telling companies, “I’m smart.” In contrast to just saying to a recruiter, “I’m smart,” a Harvard math degree is not something that less able applicants can mimic, or would even want to, because the cost—in terms of work hours and psychic suffering—is too great for those lacking high-powered analytical skills.

Stripped down to its essentials, Spence’s signaling model simply requires that there be a link between being productive, honest, good—anything that’s a desirable, yet hidden (at least from the buyer) attribute—and the cost of doing something. And that something can be anything, really, as long as everyone knows it’s cheap for the smart and virtuous to do it.

It’s easy to think of an Ivy League degree as a useful signal and why people would want to get one if they could. Less so for Roberto Torres’s San Fer gang tattoo, even though it’s doing much the same job as the Harvard degree. What makes it hard for most people to think of a prominent tattoo in this way is that they’re focused on the awful cost of having to go through life with dimmed employment prospects and possibly even a crosshairs on their chest.

That’s exactly the point of tattoos like Torres’s or those of the notorious MS-13 gang, whose members go so far as to heavily ink their faces: For most people, the cost of gang markings is likely much higher than it is for those committed to gang membership. At minimum, the uncommitted might consider the future cost of finding legal employment, how they’ll be perceived in “polite” society, or the financial and physical pain involved in removing the words “F*** the LAPD” from their chest. Since such tattoos make a life outside the gang world so much harder, they won’t be mimicked by interlopers or, much worse, cops and informants.

Lots of seemingly self-destructive behaviors can be explained this way: A new prisoner whacking his head against the wall or jabbing a knife in his own thigh may seem crazy. But he’s communicating to his audience of fellow inmates that he won’t mind a few cuts or bruises in a confrontation. Compared to a fresh arrival who tries to solidify his place in the prison hierarchy by acting tough or talking tough, in a way, the head banger is the more rational one. At least the message he’s sending is credible.

The new inmate may very well be insane, just as gang tattoos could merely be a signal of shortsightedness. But whether acquired through shortsightedness or more thorough deliberation, tattoos make life outside gangs so hard that they serve as an effective commitment not to defect; as Robert Torres learned, it’s too costly to live on the outside.  

Why do gangs in particular resort to such extreme measures? In the opening to his book, Codes of the Underworld, Diego Gambetta, an Italian sociologist, points out the enormous informational challenges that arise when running a successful criminal organization. Online shoppers have nothing on the aspiring criminal mastermind in their need for credible signals. Suppose you want to rob a bank and need someone on the inside to help you with the job. How do you figure out which bank teller will be a trustworthy partner and which will contact the police?

As Gambetta writes, “Given these propensities, one wonders how criminals ever manage to do anything together.” Gambetta’s underworld codes—the Japanese yakuza’s propensity, for instance, to remove a finger to broadcast the fact that they’ve atoned for a breach of gangster etiquette—always involve a cost that makes members’ intentions and loyalties credible.

Thanks to the script laid out by Spence in his landmark paper nearly half a century ago, neck tattoos make a little more sense.

This article has been adapted from Ray Fisman and Tim Sullivan’s book, The Inner Lives of Markets: How People Shape Them—and They Shape Us.