What is screening in economics?


Quick Answer

Screening in economic theory refers to the ways in which buyers filter out false information from sellers, retaining only what is true. Screening is especially necessary in contemporary markets, since products are increasingly complex for the average consumer. Non-specialist buyers of cars and other technologies rely far more on the information provided by sellers than they would in an agricultural market, for instance, where the value of products is easily assessed.

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Full Answer

The problem is summarized as one of asymmetric information. In other words, the seller has access to more information than the buyer.

Examples of screening mechanisms exist in the job market, too. Since candidates (sellers) are an unknown quantity to employers (buyers), those in charge of hiring will look for distinguishing merits such as graduate degrees and recommendations from associates, rather than simply trusting what the applicant has to say.

Screening is twinned with the concept of signaling. This refers to the way in which sellers are compelled to signal the value of their products over those of others. They may do this by displaying their own confidence in the product by way of purchase incentives like warranties and money-back guarantees. For large companies, signaling can be largely automated in the form of a well-established and trusted brand name.

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