Question

which of the following is an example of signaling? choose all that apply. There is more than one coeect answer.

A.Haley uses her 4.0 grade point average to land a new job

B. Tommy's Tea Shop advertises by recording the testimonials of satisfied customers.

C. Fred's Used Cars offers a warranty on every car sold

D. Jo decides to go to graduate school so her future employer will know that she is smart and a hard worker.

Answer 1

All of the options are example of signalling.

In contract theory, an agent conveys an information to a principal to eliminate asymmetric information.

In option A, Haley uses her 4 GPA to signal her ability,

In option B, Tommy uses testimonials of satisfied customers to signal that they're good service provider.

In Option C, the warranty on every sold acts a signal that they're selling good quality cars.

In Option D, acquiring a degree from grad school again serves an example of signalling tool since it can signal something about Jo's signalling ability.