The "status" hypothesis simply claims that we associate one another with a one-dimensional quantity: the perceived degree to which others' behavior can affect our well-being. And each of us behaves toward our peers according to our internally represented status mapping.
Imagine that, within your group, you're in a position where everyone wants to please you and no one can afford to challenge you. What does this mean for your behavior? It means you get to act selfish -- focusing on what makes you most pleased, and becoming less sensitive to lower-grade pleasure stimuli.
Now let's say you meet an outsider. They want to estimate your status, because it's a useful and efficient value to remember. And when they see you acting selfishly in front of others in your group, they will infer the lopsided balance of power.
In your own life, when you interact with someone who could affect your well-being, you do your best to act in a way that is valuable to them, hoping they will be motivated to reciprocate. The thing is, if an observer witnesses your unselfish behavior, it's a telltale sign of your lower status. And this scenario is so general, and so common, that most people learn to be very observant of others' deviations from selfishness.
On Less Wrong, we already understand the phenomenon of status signaling -- the causal link from status to behavior, and the inferential link from behavior to status. If we also recognize the role of selfishness as a reliable status signal, we can gain a lot of predictive power about which specific behavioral mannerisms are high- and low-status.
Are each of the following high- or low-status?
1. Standing up straight
2. Saying what's on your mind, without thinking it through
3. Making an effort to have a pleasant conversation
4. Wearing the most comfortable possible clothes
5. Apologizing to someone you've wronged
6. Blowing your nose in front of people
7. Asking for permission
8. Showing off
Answers:
1. Standing up straight is low-status, because you're obviously doing it to make an impression on others -- there's no first-order benefit to yourself.
2. Saying what's on your mind is high-status, because you're doing something pleasurable. This signal is most reliable when what you say doesn't have any intellectual merit.
3. Making an effort to have a pleasant conversation is low-status. It's high-status to talk about what you care about.
4. Wearing the most comfortable possible clothes is high-status, because you're clearly benefiting yourself. (Dressing in fashionable clothes is also high-status, through a different inferential pathway.)
5. Apologizing is low-status because you're obviously not doing it for yourself.
6. Blowing your nose is high-status because it's pleasurable and shows that you aren't affected enough by others to stop.
7. Asking for permission is low-status. Compare: recognizing that proceeding would be pleasurable, and believing that you are immune to any negative consequences.
8. Showing off is low-status, because it reveals that the prospect of impressing your peers drives you to do things which aren't first-order selfish. (Of course, the thing you are showing off might legitimately signal status.)
Pwno's post makes a good related point: The most reliable high-status signal is indifference. If you're indifferent to a person, it means their behavior doesn't even factor into your expectation of well-being. It means your computational resources are too limited to allocate them their own variable, since its value matters so little. How could you act indifferent if you weren't high-status?
That's what I mean by "the everyday connotations carried by the term".
The OP's hypothesis is that if I see someone acting selfishly, I will choose my behaviour toward them on the basis of my inferring from this selfishness a quantity the OP calls "status". I don't really understand this hypothesis.
Consider the following situation. I'm invited to dinner. I notice an individual at the table who's grabbing food from everyone's plates, including mine. That counts as selfish behaviour in my book. Nobody reacts in any other particular way to that individual's behaviour; that is, their behaviour toward him is the same as toward each other, and only this individual differs from the others, in this particular respect only.
The OP's prediction is that I would assign high status to that individual. My intuition is that I would consider them a little crazy, and interpret the others' behaviour as tolerance (which, again intuitively, I would equate to the individual having low status).
By contrast, if you tell me that someone is a dictator, what I would expect based on that hypothesis is that others around him behave in particular ways: they will show deference, fear, eagerness to please them. That is because my understanding of dictators is that they will routinely have people around them shot or tortured if they displease them (and sometimes even if they don't, just as a whim). The fact that the dictator has this strategy is entirely sufficient to explain his entourage's behaviours towards him: "status" strikes me as a superfluous hypothesis.
I'm confessing my ignorance of what explanatory work the term "status" is supposed to achieve. No "countersignaling" (I should really say "dissembling" or something like it) on my part here, just honest confusion. Pointing me to an authoritative source could be a good start to my correcting this state of ignorance.
If you are in the presence of a dictator, I do not recommend doing the following: