If a person takes a costly action simply to influence others' beliefs then this person is engaged in what economists call:
A) market unraveling.
B) adverse selection.
C) moral hazard.
D) signaling.

Question

Quizplus · Accepted Answer

Signaling is a concept in economics in which an individual takes a costly action in order to convey information to others. By taking this action, they are signaling a particular trait or characteristic about themselves in order to influence others' beliefs or behaviors. Examples of signaling can include investing in education, dressing professionally for a job interview, or purchasing a luxury item to demonstrate one's wealth. Therefore, if a person takes a costly action simply to influence others' beliefs, they can be considered to be engaged in signaling. The other options, market unraveling, adverse selection, and moral hazard, do not accurately describe this scenario.

If a Person Takes a Costly Action Simply to Influence