Signaling and Screening in Curb Your Enthusiasm
How Does Larry David Wearing a MAGA Hat Relate to Economics?
Curb Your Enthusiasm is in its 12th and final season this year. The series is funny, entertaining, and shows situations from real life. Many of these situations provide economic lessons and during Curb Your Enthusiasm’s final season, I will be discussing an economic lesson from the series. In this article, we examine how signaling and screening takes place in Curb Your Enthusiasm, and how it is valuable in the real world.
In the first episode of season 10, we see that Larry David doesn’t want to participate in a lunch work meeting with Philip Rosenthal. He gets an idea when he and his agent Jeff – who live in super-liberal southern California (and who are also both politically left-leaning) – discuss how they don’t like Trump’s “Make America Great Again” (MAGA) hats. Knowing his lunch partner will think the same, Larry arrives early wearing the MAGA hat. It works. Larry’s lunch partner is disgusted and finds an excuse to leave. Larry also wears the hat at another restaurant bar to avoid having people sit next to him.
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Later in the episode Larry is driving recklessly almost hits and seriously injures a middle-aged motorcyclist who looks to be riding a Harley Davidson. Naturally, the motorcyclist gets angry and drives up, yelling at Larry. Once the car stops, Larry quickly puts on the MAGA hat. The motorcyclist, seeing Larry in the MAGA hat, calms down and simply tells Larry to be more careful.
What is Signaling and Screening?
This series of scenes, while humorous, provides a good insight into signaling and screening. A signal is an action that someone can take to convince others of who they are and/or their skills. You would often think of a potential worker as taking actions that send a signal, like completing certificates, earning a high school or college degree, or earning good grades as signals of quality.
Screening occurs by those seeking to sort out who’ll they associate with. For employers, screening devices can help them determine who they’d like to hire. For example, some federal government jobs have exams people will take to share their skills. Many employers require drug tests as a basic form of screening. Another example is the Bar Association screens potential lawyers by having them pass the Bar Exam before becoming licensed attorneys.
Why Does Signaling and Screening Matter?
Signaling and screening, when done well, is incredibly valuable to society. How well a prospective worker might perform at a job or how well a student might succeed at a university is never certain. In a world with imperfect information – effective signals and effective ways to screen are valuable. Michael Spence co-won the 2001 Nobel Prize for showing that individuals taking costly actions to signal their skills to prospective employers can lead to better sorting of individuals to jobs.
Michael Spence receiving Nobel Prize
Suppose a firm has a job that pays a nice salary. Naturally, many workers would want that job – regardless of their abilities to complete the job. But prospective workers may be able to take actions that help signal how they could be a good fit. But the actions come at a cost, but should be easier for those who’d be a better fit in the job. For example, earning certifications or getting good grades in school could be done by anyone, but are easier for some, and might be correlated with success at a particular job. The prospective employee who takes the time to do these will be signaling their skills in a particular job.
Screening also has value to society. Firms don’t know with certainty whether a workers will be successful. But for some, the way someone dresses to an interview sends a signal of quality or fit. A drug test might also signal how well someone might work for an organization. Some organizations famously give tests to prospective employees to test their abilities or fit. These screening tests are designed to help firms hire workers that will be more likely to be successful.
Colleges and universities use GPA and SAT scores as a screening tool. While neither is perfect – better performance in high school and higher SAT scores are both correlated with success at the college level, making these effective screening instruments.
If perfect information was available everywhere, things would be easier. But people and organizations don’t have perfect information, and that’s where taking actions to send a signal or determining ways to screen can be valuable. We see this in Curb Your Enthusiasm with this ridiculous MAGA hat example, and more commonly we see this in the real world with firms and organizations.
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