Signaling

8 Key excerpts on "Signaling"

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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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  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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  A Course in Microeconomic Theory

  • David M. Kreps(Author)
  • 2020(Publication Date)
  • Princeton University Press

    (Publisher)

  An important variation that we have not touched upon concerns sig-naling models where the signals are costless to send. That is, participants can engage in cheap talk -things costless to say, but not at all incon-sequential to the equilibria that can be attained. See Crawford and Sobel (1982) and Farrell (1988) on this topic. And throughout this chapter we have been concerned with the Signaling of private information. One can also analyze the Signaling of previously taken actions, or even the signal-ing of actions intended in the future. (See, for example, Wolinsky [1983] or Ben-Porath and Dekel [1989].) An issue less theoretical and more practical concerns the impact of repeated play in the oligopolistic sense on equilibria in the context of screening. That is, if we imagine insurance companies that offer potential clients a menu of contracts, and we think that these companies might en-gage in some form of implicit collusion, then the discussion of Rothschild and Stiglitz versus Riley versus Wilson might be turned on its head. Per-haps the companies collude and offer a menu of contracts that is best for them as a cartel, held together by a threat of reversion to cut-throat compe-tition. This leads one to ask, If the insurance business is not competitive but instead is a monopoly (or a cartel), what menu of contracts will be offered? (And if the insurance business is regulated, what then?) With this as a lead-in we move on to chapter 18. References Admati, A., and M. Perry. 1987. Strategic Delay in Bargaining. Review of Economic Studies 54:345-64. Akerlof, G. 1970. The Market for Lemons: Quality Uncertainty and the Market Mechanism. Quarterly Journal of Economics 89:488-500. Banks, J., and J. Sobel. 1987. Equilibrium Selection in Signaling Games. Econometrica 55:647-62. 17.4. Bibliographic notes and discussion 653 Ben-Porath, E., and E. Dekel. 1989. Coordination and the Potential for Self-Sacrifice. University of California at Berkeley. Mimeo. Cho, I-k., and D.

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  Competitive Solutions

  The Strategist's Toolkit

  • R. Preston McAfee(Author)
  • 2009(Publication Date)
  • Princeton University Press

    (Publisher)

  19 There are three reasons for the strategist to be familiar with the Signaling of psychosis. First, it sometimes pays to appear irrational. For example, in order to signal a commitment to a punishment that is not credible, a manager may want to appear excessively vengeful. Second, everyone should have a passing familiarity with the warning signs that an employee is about to “go postal,” as common parlance describes a murderer of coworkers. Third, the same environmental traits that make schools foster dangerous students also make the workplace dangerous, and are to be avoided by a savvy management.

  EXECUTIVE SUMMARY — Signaling

  •   People and firms signal their character by the choices they make. •   Usually the individual has no choice about the interpretation of his or her behavior, which is determined by the observer. •   Examples of Signaling include Expensive buildings and furnishings to signal a successful firm Warranties to signal reliability Expensive clothes and accessories to signal wealth Education to signal ease of learning, ability to focus A full product line to signal commitment to a product category Behavior in a crisis Signaling corporate responsibility or lack thereof Introductory offers and advertising to signal product quality to consumers Prices as a signal to potential entrants about the profitability of a market Vaporware buys time but signals an untrustworthy firm. •   In many situations, such as a product safety crisis or with a warranty, the Signaling value of behavior may outweigh direct costs and benefits. •   By acting responsibly and rehabilitating Tylenol at great cost after the poisonings, Johnson & Johnson avoided tainting its entire product line. Of all majors, classics and astronomy attract students with the highest combined SAT scores. †

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  Mathematical Models of Social Evolution

  A Guide for the Perplexed

  • Richard McElreath, Robert Boyd(Authors)
  • 2008(Publication Date)
  • University of Chicago Press

    (Publisher)

  53 In this chapter, we deal with two cases. First, we present models in which intentional communication, signals , can affect the outcomes of a game. Like much of the literature in this area, we spend most of our time on models of how the costs of producing a signal can affect how other indi-viduals respond. Second, we treat explicitly social learning as a special case of animal communication in which information arises whether the demonstrator intends it or not—what is sometimes called social or public information . Along the way, we’ll learn how to deal with two-locus genetic models and see one way to model the evolutionary dynamics of information within a population. 5.1 Costly Signaling theory Early animal behavior giants like Niko Tinbergen thought that nature was full of cheap, honest signals, and that selec-tion favored low-cost, honest communication. 54 This was the dominant view of animal signals until 1978, when Richard Dawkins and John Krebs 55 published a paper arguing that honest signals will be rare because different animals never share exactly the same interests. Instead, they argued that signals are the product of an arms race between manipu-lative signalers and suspicious receivers. This paper was very influential, and many people came to believe that sig-nals would rarely be honest and that early ethologists had been misled by a failure to think clearly about individual benefit. A few years earlier, in 1975, an Israeli biologist named Amotz Zahavi had published a paper in Journal of Theo-retical Biology in which he argued that exaggerated charac-ters in males, like peacock tails, could act as honest signals 5.1. COSTLY Signaling THEORY 175 of male quality because they were “handicaps” which only high-quality males could afford. This paper was controver-sial. Dawkins and Krebs argued against it in their 1978 pa-per, as had John Maynard Smith a few years earlier.

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  Review of Marketing Research

  • Naresh K. Malhotra(Author)
  • 2013(Publication Date)
  • Emerald Group Publishing Limited

    (Publisher)

  1 One solution to the adverse selection problem is for firms to use signals to communicate their high quality (e.g., Kirmani & Rao, 2000; Spence, 1973 ). Credible signals are actions that are economically unattractive for untruthful firms. For instance, if a firm that is falsely claiming that its product possesses a certain attribute were to advertise excessively, it would AKSHAY R. RAO ET AL. 116 not recoup the costs of the advertising once consumers discover that its product does not possess the attribute, because future sales would not occur. In other words, sellers making false claims would not recover any money they spend to make their claim credible. However, a truthful seller could recover its investment in advertising because buyers who purchased and used the product would find that its claim was true, and they would engage in repeat purchase; the profit stream from future sales would potentially defray the cost of the initial advertising. 2 The literature suggests several ways in which firms can signal, including investing in brand names ( Erdem & Swait, 1998 ), offering high warranties ( Lutz, 1989 ), sharing an established brand name ( Wernerfelt, 1988 ), charging high prices ( Bagwell & Riordan, 1991 ), charging low-introductory prices ( Dawar & Sarvary, 1997 ), and choosing a reputable retailer ( Chu & Chu, 1994; Davis & Rao, 2001 ). In practice as well, signals are seemingly frequently deployed. For instance, during Super Bowl 2000, an E Ã Trade commercial featuring two men and a monkey on the porch of a country house simply playing a musical instrument for 30 seconds, concluded with the tag line: ‘‘We just spent 2 million dollars y ’’ Similarly, Hyundai offers a 10-year warranty on its new automobiles. However, although analytical Signaling models suggest that firms may use a variety of signals, the models do not specify how managers ought to choose among different, economic-ally equivalent, Signaling vehicles in a competitive marketplace.

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  Everything I Ever Needed to Know about Economics I Learned from Online Dating

  • Paul Oyer(Author)
  • 2013(Publication Date)
  • Harvard Business Review Press

    (Publisher)

  This system works reasonably well, but there has, historically, been one problem. The “Bob from Cincinnati” economists have had trouble convincing the second- or third-tier schools that they really would like to work there and that, even if offered a faculty position at Harvard, they would prefer a less prestigious position (for geographic, lifestyle, or other reasons). Since this is the one job market where anyone might listen to the advice of a bunch of economists, several of them got together and proposed a solution. They suggested that the American Economic Association (AEA) set up a system whereby each person applying for a new job as an economist could send up to two private signals to potential employers. That is, they allowed each job seeker to send two virtual roses (though they used different terminology since, in this context, calling it a rose would be a bit strange).

  The AEA specifically advises applicants not to use their two precious signals for their top two choices but rather suggests sending them to employers “you like but that might otherwise doubt whether they are likely to be able to hire you.” They also advise applicants not to waste signals on top-tier employers that virtually everyone looking for a job is interested in.

  These signals have largely been used in the way they were intended. Students at top-tier schools used them to signal geographic preferences and specific interest in second-tier employers. Institutions looking for employees took the signal very seriously—sending a signal increased a candidate’s probability of getting an interview from about 25 percent to about 32 percent. The effects were much bigger for applicants to liberal arts colleges because jobs at such institutions are not as attractive to the typical economist; there is a substantial subset of economists who like the teaching and small-class orientation of liberal arts colleges, though, and the signal is a very valuable way for them to show these schools they really want a job there.

  The success of Signaling on the economics job market (and, less directly, on Korean internet dating sites) suggests other employers may be able to use Signaling to sort through applicants. In recent years, Google has gotten as many as seventy-five thousand job applicants in a given week—obviously, that is a lot of résumés to filter through. Undoubtedly, many (probably most) of those applicants know little about Google other than that they make cool products and have a reputation for being a good place to work. Some may apply just because of the well-known free and high-quality food in Google’s cafeterias. How can Google save itself the trouble of sorting through all those résumés and get people to apply to Google only if it is the case that they would be a good fit and are qualified? That is, can Google get applicants to include the equivalent of a virtual rose?

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