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Signalling (Economics)
In economics, signalling is a strategy where an informed party takes a costly action to credibly convey private information to an uninformed party. For a signal to be effective, the cost of sending it must be lower for high-quality or high-ability agents than for low-quality ones. This cost differential allows the uninformed party to distinguish between types, helping to overcome problems like adverse selection. Common examples include educational credentials in the labor market or warranties for products.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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