NC State Economist Mike Walden: Signaling



Information is important to most decisions, but often that information is hard to get.  How do people cope with this reality?

  1. one way is through a concept called signaling
  2. decision makers look for obvious and easy-to-obtain characteristics that have a high correlation with the information they really want
  3. for example, many economists think this occurs with college education
  4. it’s been documented that many employers don’t care what major a college graduate has – all they want to know is that the individual has a degree; they will learn what they need to know on-the-job
  5. why do employers do this
  6. because use the mere fact the person has a college degree as a signal about valuable characteristics
  7. intelligence, perseverance, conformity, ability to deal with groups, etc.
  8. explains why many students change field frequently – know need any degree