The Significance of Signal

Signaling plays a vital role not only in Economics but also in Biology. Our game theory Professor Andreozzi has discussed briefly about how does signaling shape our both economic and social life. We can find this signaling in both animals and human beings. Everybody likes to give a signal.

Signal means a nonverbal gesture that encodes a message. Whether it is an honest signal or harsh signal, it shows how the agent behaves towards the ultimate objective. If we consider the case of job market, a job seeker gives a signal by wearing good dresses to the employer that he is smart, talented and different from others. There is no doubt that there is a gap between academic world and real life world. Suppose, we study MBA, to get an MBA from the university like Stanford, we study statistics, economics, quantitative analysis and some other difficulty subjects and at the same time, we  give a signal to others that it’s really harder on part of others to purse the same course, so signaling is a type of isolation that isolate or differentiate between categories. It is true that we don’t apply all of our courses we generally learn at our academic career but it shows a strong signal that we are talented enough and can take decision efficiently and wisely than others who did not study the same courses.

If we look at market economics, we can find how a buyer gives a signal to a seller in bargaining. Recently I read an article in the Economist by Michael Bordo on ‘a signal of future inflation’ and he discussed on commodity prices and inflation.

COMMODITY prices are rising for two reasons. The first is that the Fed signalled that it would easy monetary policy and then followed through in announcing QE2. Commodity prices tend to be the first signals of excess liquidity and possible future inflation. They are traded in vast highly liquid markets with few impediments to information. In past inflationary episodes commodity prices always rose first as they are dominated by existing stocks which have inelastic supplies. This was the case after the gold discoveries in the 1840s, in the Great Inflation and many other episodes.

The second reason is growing demand for many commodities by the fast growing emerging countries in Asia and Latin America. This is a longer run structural phenomenon.

I expect what is driving most of the current run up in commodity prices is the US’ expansionary monetary policy and fears of global inflation in the future.

So, we can easily say that the importance of signaling plays a vital role in our life.

If we go to the animals world, we can observe signals everywhere. We will generally experience three types of signaling. Singling between potential rivals, signaling between relatives and signaling potential mates [Source: Prof. Kevin J.S. Zollman; Signaling]. The signals depends on a number of factors like cost, circumstance and conflict of interest. In the jungle, if you see a tiger, tiger will give you a signal that he can be dangerous in case you attack. Look at  butterfly  and colored fishes and see how it changes its color, it’s all game of signaling. It’s no doubt that signaling is very important in Biology.

Take the case of a chick and a parent, when the Chick is begging ( it entails some energetic cost), it can generate a conflict of interest, and it also pays an impact on how honest the communication should be [Source: Prof. Kevin J.S. Zollman; Signaling].

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