‹ Axisless Game theory
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Signalling

The informed side spends something that a weaker type could not afford to spend, in order to prove which type it is.

Often misread asConcluding that any sufficiently expensive action is a credible signal, so burning money, or heavy spending that costs every type the same, is treated as proof of quality.

How to see it

The signal has to be cheaper for the one telling the truth

Signalling is the informed side taking a costly, visible action in order to reveal what it knows. The action only conveys anything if it costs less for the type that wants to be believed than for the type that would like to imitate it. A degree can signal ability even if it teaches nothing, provided it is harder work for the less able.

The checkThe signal must be differentially costly. If the weak type can afford the same gesture at the same cost, it will make it, and the signal then tells you nothing.
Try itCompare two gestures: a campaign that costs the same per pound of revenue whatever the product is like, and a long no-quibble warranty that a shoddy maker would have to honour far more often. Say which one can support separation, and say why the other cannot, in terms of the imitator's cost.

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