Education and Signaling


College degrees can signal a job applicant’s intelligence and, consequently, separate productive from unproductive workers. What’s the purpose of a college education? College might expand your mind and make you more enlightened, but I suspect that most people attend college to increase their lifetime income. Why, however, does going to college increase one’s earning capacity? The standard answer is that college teaches people useful things. A signaling theory about college, however, shows that college could increase a student’s earning capacity, even if it taught him nothing of value.[4]

It’s somewhat challenging to graduate from a decent college. To graduate, you must first be accepted by the school and complete all the required work. Graduating from college signals to a future employer that you have a decent level of intelligence, responsibility, and diligence. Imagine that you want to hire a high-quality employee. You believe that students don’t really learn anything useful in college. You think that college students just memorize lots of stuff and write papers on theoretical issues of no importance. You do, however, believe that it’s difficult to do all of this memorization and writing. Consequently, the fact that someone graduated from college signals to you that they have high intelligence even if you believe that college did not enhance this intelligence. Hopefully, students do learn a few useful things in college. The point of this paragraph, however, is to explain that even if college teaches you nothing of value, it would still be valuable to attend, for graduating from college would signal to some types of employers that you might be worth hiring.

[4]Spence (1973).




Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
ISBN: N/A
EAN: N/A
Year: 2005
Pages: 260

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