Note: This is post #68 in a weekly video series on basic microeconomics.

Economists often make such claims as “a college diploma is an example of signaling.” What exactly do they mean by ‘signaling’?

A signal is an action that reveals information, explains Tyler Cowen. In this video by Marginal Revolution University, Cowen looks at higher education, and shows how a a large fraction of the value you receive from your es on the day you earn your diploma.

(If you find the pace of the videos too slow, I’d mend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)

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