For an action to be an effective signal:
A)it must be costly, and less costly to the person with the higher-quality product
B)it must be costly, and less beneficial to the person with the higher-quality product
C)it cannot be costly
D)none of the above

Question

Quizplus · Accepted Answer

An effective signal must be costly, as this demonstrates a commitment from the individual providing the signal. However, it should be less costly to the individual with the higher-quality product to ensure that there is an incentive to provide the signal. This makes choice A the best option.

For an Action to Be an Effective Signal