Cognitive Scaffold

Preparing your thinking workspace

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MENTAL MODEL · M4670

Signaling

Signaling
BusinessHigh supportMicroeconomics
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Version 1.0.0 · Updated 2026-07-28

CORE DEFINITION

A signal is both the process and the result of transmission of data over some media accomplished by embedding some variation. Signals are important in multiple subject fields, including signal processing, information theory, and biology.

SCAFFOLDING EFFECT

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Reduce cognitive load

A signal is both the process and the result of transmission of data over some media accomplished by embedding some variation. Signals are important in multiple subject fields, including signal processing.

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Proposed by Michael Spence in signaling theory: under information asymmetry, high-type individuals can distinguish themselves from low-type individuals by sending signals that are costly and difficult for low types to imitate. The key to effective signaling is cost separation (separating equilibrium) — the signal is cheaper/more advantageous for high-quality types and expensive for low-quality types, making it credible.

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