, Columnist
Economists: Drop the Signaling Fad
Not every human action sends an economic message.
Just to be clear -- this is a signal.
Photographer: Thomas Koehler/Photothek/Getty ImagesThis article is for subscribers only.
There’s a fad in the economics world that annoys me. The fad is to describe every human action as “signaling.” This has to stop, people.
First, a brief explanation. Signaling, basically, is jumping through hoops in order to prove yourself in some way. There are lots of situations where information is asymmetric -- maybe a dealer knows a used car runs great, but the buyer is worried it might be a clunker. This information asymmetry leads to rational distrust, which can cause markets to break down.