Lecture 23 - Asymmetric Information: Silence, Signaling and Suffering Education

We look at two settings with asymmetric information; one side of a
game knows something that the other side does not. We should always
interpret attempts to communicate or signal such information taking
into account the incentives of the person doing the signaling. In
the first setting, information is verifiable. Here, the failure
explicitly to reveal information can be informative, and hence
verifiable information tends to come out even when you don’t want
it to. We consider examples of such information unraveling. Then we
move to unverifiable information. Here, it is hard to convey such
information even if you want to. Nevertheless, differentially
costly signals can sometimes provide incentives for agents with
different information to distinguish themselves. In particular, we
consider how the education system can allow future workers to
signal their abilities. We discuss some implications of this rather
pessimistic view of education.