One way to solve the problems caused by information asymmetry is:
A) screening.
B) signaling.
C) building a reputation.
D) All of these are solutions to information asymmetry.

Question

Quizplus · Accepted Answer

All three solutions - screening, signaling, and building a reputation - can help to reduce the problems caused by information asymmetry. Screening involves using tools like background checks or credit scores to evaluate the trustworthiness of counterparties. Signaling involves sending messages that communicate private information, such as investing in high-quality materials to signal product quality. Building a reputation involves creating a track record of trustworthy behavior over time, which can ease concerns about potential information asymmetry. Combining these approaches can further reduce information asymmetry, making D the best answer.

One Way to Solve the Problems Caused by Information Asymmetry