Signaling & Screening

3 Key excerpts on "Signaling & Screening"

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  Game Theory and Society

  • Weiying Zhang(Author)
  • 2017(Publication Date)
  • Taylor & Francis

    (Publisher)

  9Signaling and social norms

  When information is asymmetric, in order to realize the benefit of a transaction, the party with good information has an incentive to report it to the party without information. However, words are worthless, so there must be a way to make the other party believe it.

  So-called signaling is using credible methods to reveal a person’s type. The reason a signal is credible is because the same signal has different transmission costs for different type of people. The cost of transmitting a signal for a “good” type of person is lower than for a “bad” type of person, so the latter will not dare to imitate the former. Therefore, the party without private information can judge another person’s type by observing signals.

  Any costly, observable behavior can become a signal that transmits information. High-ability people can tell employers they are high-ability through education because the same education will be too difficult for low-ability people. The owner of a good car can tell the buyer he has a good car by providing a guarantee, because the cost of providing a guarantee for a bad car is too high. High-efficiency firms can tell the market they are high-efficiency by more leveraging, because low-efficiency firms do not dare to hold more debts. Advertisements tell consumers a product is high quality because advertisements are too costly for low quality products. In all of these cases, we get separating equilibrium. If the cost of sending the same signal is not sufficiently large, then the bad type will imitate the good type, which will result in a pooling equilibrium. Under a pooling equilibrium, signals do not transmit “good” information, but can conceal “bad” information.

  The signaling function of a type of behavior might also come from the different value a cooperation has for different people. The reason gift giving and certain other social norms can transmit the signal a person is willing to cooperate with others is because patient people put more weight on future benefit. The signaling function of gifts means the value of the gift to the recipient is not important. Instead, the cost to the giver is important.

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  Decision Making in Marketing and Finance

  An Interdisciplinary Approach to Solving Complex Organizational Problems

  • P. Koku(Author)
  • 2014(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  CHAPTER 4 Signaling in Finance and Marketing

  What is signaling, why is it used, and when is it used in marketing? These are a few questions that usually come up, which we intend to deal with in this chapter. The term “signaling” is used in many disciplines including, but not limited to, finance, economics, marketing, and evolutionary biology. Some scholars have argued that the term originated from evolutionary biology where scientists use it to describe a unique communication between male and female species—insects, animals, birds, and so on. Signals are different from “cues” and are intentionally emitted by the sender to communicate a specific intent. This intent is received by the receiver of the signal. For example, the male frog communicates its readiness to mate by emitting a specific signal to indicate its intent. This intent is understood by a female gray tree frog that receives the signal (Feldhamer et al., 2007). Similarly, peacocks supposedly signal their reproductive fitness with their large colorful tails (Grafen, 1990).

  Signaling has, over the years, made its way into other disciplines including those that are not even remotely related to evolutionary biology. In the social sciences such as economics, finance, and marketing, signaling theory is used to explain communication between agents and principals in a market of information asymmetry (imperfect information), in which the market participants have different information. As in evolutionary biology both the signal sender and the receiver benefit from the signal. Spence in a seminal paper on labor market signaling argued that the labor market works more efficiently when potential productive employees signal their productivity through the “amount” of education they have acquired, even if it is assumed that there is no intrinsic value to education itself (1973).

  Even though the concept of signaling is simple, it is somewhat difficult to fully express in words. This difficulty was expressed by Spence as follows:

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  Rebranding China

  Contested Status Signaling in the Changing Global Order

  • Xiaoyu Pu(Author)
  • 2019(Publication Date)
  • Stanford University Press

    (Publisher)

  24 Emotional behaviors can have important implications for strategic interactions and for signaling in particular. 25 Status signals are discussed in psychology, sociology, behavioral economics, and biology. For instance, in a competitive market environment, the status of a firm can become informational on the basis of which third parties make inferences about the quality of the firm. 26 In domestic society, status signals are defined as rituals and behaviors people use to demonstrate their preferred social standing in a community. Status signaling uses a subset of signals to convey the information that a state is asserting a particular standing in inter-national society. In a general sense, status signaling is the mechanism of in-formation transmission that aims to change or maintain a status belief among relevant political actors. All signaling models involve information transmission and image projec-tion. In international politics, signaling is a kind of communication, in which a state’s language and behaviors are aimed at influencing the perceptions and rebranding china 20 actions of others. 27 Not everything a country does is signaling behavior. The difference between signaling and nonsignaling behavior is that signaling is primarily concerned about the projection of image. For instance, an upgrade in military capabilities during a war is not signaling, although winning a war could help build image. 28 Signaling is important in all kinds of strategic interactions, and it can help mitigate potential conflicts. Biologists find that signaling can play an impor-tant role even in animal behaviors. Why would a gazelle waste time and en-ergy bounding straight up instead of running away when it meets a wolf ? According to one biological theory, the gazelle is signaling to the predator that it is able to outrun it. The wolf, learning that it has lost its chance to surprise the prey and that this gazelle is in excellent shape, decides to look for easier prey.

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