Screening (economics)

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Screening in economics refers to a strategy of combating adverse selection, one of the potential decision-making complications in cases of asymmetric information. The concept of screening is first developed by Michael Spence (1973), and should be distinguished from signalling, which implies that the informed agent moves first.

For purposes of screening, asymmetric information cases assume two economic agents--let's call them Abel and Cain--where Abel knows more about himself than Cain knows about Abel. The agents are attempting to engage in some sort of transaction, often involving a long-term relationship, though that qualifier is not necessary. The "screener" (the one with less information, in this case, Cain) attempts to rectify this asymmetry by learning as much as he can about Abel.

The actual screening process depends on the nature of the scenario, but is usually closely connected with the future relationship .

In education economics, screening models are commonly contrasted with human capital theory. In screening models, education is assumed to act as a filter, with successful completion of education signalling high levels of native ability.

[edit] Examples

Banks will often screen people interested in borrowing money in order to weed out those who won't be able to pay it back. Banks might ask potential borrowers for their financial history, job security, reason for borrowing, assets, education, experience and so on.
Firms interview processes are a method of screening, using the conversation to learn about the person's personality (by way of mannerisms, attitude and dress) as well as other factors.
The dating and flirting that goes on every day is a form of screening, where people use a large variety of cues to avoid undesirable mates.