Cam and Mitch have decided to get Jay and Gloria a special gift for Gloria’s impending birth. Jay and Gloria have both created a registry of gifts they would like, but Cam has decided to go “off registry” because he believes Jay and Gloria don’t really know what they want. Mitch seems concerned that they will not appreciate it.
One of the issues with gift giving is that the parties have imperfect information about what the other will value the gift at. Economists love to focus on the inefficiency of gift giving and often suggest just exchanging money.
See more: altruism, gift giving, imperfect information, irrationality, rationality
Alex is practicing her college interview for Princeton in the mirror when Haley comes in to style her hair. Princeton is an Ivy League school that is very prestigious and gets a lot of applications. Princeton does not know which applicants it should let in so it screens them. Screening is an action taken by an uninformed party in a situation characterized by adverse selection. There are many things that colleges do to screen applicants. They require high school transcripts, a certain GPA, test scores and they conduct an interview. When someone is interviewed, it’s an opportunity for them to send a signal. A signal is an action taken by an informed party in a situation characterized by adverse selection. Alex wants to signal to Princeton that she’s a good candidate for admission into the university. Haley shares her thoughts about the message that Alex is actually sending.
See more: adverse selection, asymmetric information, college, human capital, human capital investments, imperfect information, interviewing, signaling, signals